[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
PROFESSIONAL SPORTS STADIUMS: DO THEY DIVERT PUBLIC FUNDS FROM CRITICAL
PUBLIC INFRASTRUCTURE?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON DOMESTIC POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 10, 2007
__________
Serial No. 110-193
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.oversight.house.gov
----------
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts CHRIS CANNON, Utah
WM. LACY CLAY, Missouri JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts DARRELL E. ISSA, California
BRIAN HIGGINS, New York KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of VIRGINIA FOXX, North Carolina
Columbia BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota BILL SALI, Idaho
JIM COOPER, Tennessee JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
David Marin, Minority Staff Director
Subcommittee on Domestic Policy
DENNIS J. KUCINICH, Ohio, Chairman
TOM LANTOS, California DARRELL E. ISSA, California
ELIJAH E. CUMMINGS, Maryland DAN BURTON, Indiana
DIANE E. WATSON, California CHRISTOPHER SHAYS, Connecticut
CHRISTOPHER S. MURPHY, Connecticut JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts CHRIS CANNON, Utah
BRIAN HIGGINS, New York BRIAN P. BILBRAY, California
BRUCE L. BRALEY, Iowa
Jaron R. Bourke, Staff Director
C O N T E N T S
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Page
Hearing held on October 10, 2007................................. 1
Statement of:
Long, Judith Grant, assistant professor of urban planning,
Graduate School of Design, Harvard University; David P.
Hale, director, Aging Infrastructure Systems Center of
Excellence, University of Alabama; Bettina Damiani,
director, Good Jobs New York; and Steven Maguire,
Specialist in Public Finance, Congressional Research
Service.................................................... 86
Damiani, Bettina......................................... 109
Hale, David P............................................ 97
Long, Judith Grant....................................... 86
Maguire, Steven.......................................... 125
Solomon, Eric, Assistant Secretary for Tax Policy, Department
of Treasury; and Arthur J. Rolnick, senior vice president
and research director, Federal Reserve Bank of Minneapolis. 12
Rolnick, Arthur J........................................ 24
Solomon, Eric............................................ 12
Letters, statements, etc., submitted for the record by:
Damiani, Bettina, director, Good Jobs New York, prepared
statement of............................................... 111
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 75
Hale, David P., director, Aging Infrastructure Systems Center
of Excellence, University of Alabama, prepared statement of 99
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio:
Letter dated July 23, 2008............................... 51
Prepared statement of.................................... 7
Long, Judith Grant, assistant professor of urban planning,
Graduate School of Design, Harvard University, prepared
statement of............................................... 90
Maguire, Steven, Specialist in Public Finance, Congressional
Research Service, prepared statement of.................... 127
Rolnick, Arthur J., senior vice president and research
director, Federal Reserve Bank of Minneapolis, prepared
statement of............................................... 27
Solomon, Eric, Assistant Secretary for Tax Policy, Department
of Treasury, prepared statement of......................... 15
Watson, Hon. Diane E., a Representative in Congress from the
State of California, prepared statement of................. 142
PROFESSIONAL SPORTS STADIUMS: DO THEY DIVERT PUBLIC FUNDS FROM CRITICAL
PUBLIC INFRASTRUCTURE?
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WEDNESDAY, OCTOBER 10, 2007
House of Representatives,
Subcommittee on Domestic Policy,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m. in room
2154, Rayburn House Office Building, Hon. Dennis J. Kucinich
(chairman of the subcommittee) presiding.
Present: Representatives Kucinich, Cummings, Davis of
Illinois, Tierney, and Issa.
Staff present: Jaron R. Bourke, staff director; Charles
Honig, counsel; Jean Gosa, clerk; Chris Mertens, intern;
Natalie Laber, press secretary, Office of Congressman Dennis J.
Kucinich; Leneal Scott, information systems manager; Alex
Cooper, minority professional staff member; and Larry Brady,
minority senior investigator and policy advisor.
Mr. Kucinich. The committee will come to order.
I have been informed by the minority staff that Mr. Issa
will be here, but he has asked if we could begin in his
absence. He has assented to that.
We have also been asked by Mr. Solomon if we could expedite
his testimony, as he has other pressing time commitments, and
we shall do that, as well.
The committee will come to order. The Subcommittee on
Domestic Policy of the Committee on Oversight and Government
Reform is in order. Today's hearing will examine whether
professional sports stadiums divert public funds from critical
public infrastructure.
Without objection, the Chair and the ranking minority
member--who, again, has asked us to proceed in his absence, but
he is on his way--will have 5 minutes to make opening
statements, followed by any opening statements, not to exceed 3
minutes, by any other Member who seeks recognition.
Without objection, Members and witnesses may have 5
legislative days to submit a written statement or extraneous
materials for the record.
The Department of Transportation says there are 12,176
structurally deficient urban bridges in America today. I can
tell you, coming from Cleveland, OH, we have quite a few in our
city, as well. One of those bridges collapsed in Minneapolis,
MN, last August killing 13 people. Our bridges, roads, schools,
and water purification systems are all aging. Many are in need
of repair and replacement. Assessing the whole picture, the
American Society of Civil Engineers has concluded America's
infrastructure is ``crumbling.''
For those who are in the audience, every county engineer in
America has to keep a list of the conditions of critical
infrastructure and particular bridges and to grade those
bridges as to their structural stability. I have seen lists in
quite a few communities, and I can tell you there is a great
concern across America about the structural stability of a lot
of our infrastructure.
But even though we have our infrastructure crumbling, the
Minnesota Twins got public funding approved for a new stadium
just a year before the I-35 West bridge collapsed. The Yankees
are getting a new stadium valued at over $1 billion, even
though New York City, alone, has 50 structural deficient
bridges. In Cleveland, local and State government gave the
Browns and the Indians and the Cavaliers new stadiums, yet we
have five structurally deficient bridges in the county.
As an aside, while we are, in Cleveland, very proud of our
Cleveland Indians and want to see them go to the World Series,
we also know that in the city of Cleveland there was a great
debate about the funding for these stadiums and that, while the
public provides the funds, the people who are living in the
city aren't getting any free tickets to these games. They are
paying, if they can get a ticket, for the ticket. They paid for
the stadium. They don't get any of the profits.
Now, this story of crumbling infrastructure around the
Nation is pretty much the same everywhere, in light of publicly
funded and financed sports stadiums. Baltimore has two publicly
financed sports stadiums, while the county has eight
structurally deficient bridges. Philadelphia has three publicly
financed sports stadiums, while the county has 42 structurally
deficient bridges. Chicago has two publicly financed sports
stadiums while it has a whopping 82 structurally deficient
bridges.
Keep in mind this isn't about whether we love our teams in
our towns; we all have a great and passionate love for our home
team. But this is a separate issue as to where do we put our
infrastructure money. Does public funding of professional
sports stadiums divert funds and attention from infrastructure
maintenance?
Let's look at the case in Minnesota. Since taking office in
2003, Minnesota Governor Tim Pawlenty consistently opposed
increases to the gasoline tax, even vetoing them at least once.
The gasoline tax increase would have funded bridge and road
repair. But he signed a bill allowing Hennepin County to raise
its county sales tax without going to the voters, as county law
mandates. The county tax increase was dedicated to paying the
debt service on the bonds for a new Twins Stadium.
The Minnesota experience is not unique. State and local
officials continue to invest public funds in professional
sports stadiums, in spite of the persistence of crumbling
bridges, roads, and schools. Federal taxpayers continue to
subsidize these give-aways by financing new professional sports
stadiums with tax-exempt bonds. If there was ever a topic
meriting oversight and government reform, we have one here.
Repairing and maintaining America's roads and bridges is
one of the key Government responsibilities, and it is a
significant burden on State and local taxpayers. According to
the Congressional Budget Office, 63 percent of State and local
infrastructure spending is devoted to operations and
maintenance. That amounted to $151 billion in 2001. Those funds
are diverted from gasoline taxes and general revenues.
Most of the structurally deficient bridges are owned by
States and localities. According to the U.S. Department of
Transportation, 24,061 of the Nation's 77,793 structurally
deficient bridges are owned by States, and 55,390 of them are
owned by local governments. Obviously, State and local
governments are having a hard time keeping up with the rising
cost of bridge maintenance and structural maintenance.
Well, now comes along the professional sports team owners,
and to that problem they add another: they want a new stadium.
And not just a new stadium, but they ask for parking
facilities, a dedicated ramp from the highway, new stadium to
have more luxury boxes, even at the expense of fan seating.
They want to finance the tax-exempt bonds that the city and
State would guarantee because the costs of construction are
lower with reduced interest rates on tax-exempt bonds.
So what happens? Cities and States compete with one another
to offer the larger package of publicly financed incentives.
According to one of our witnesses here today, Professor Judith
Grant Long of Harvard, in both absolute and relative terms the
public spends a lot on professional sports stadiums. In her
written testimony, Professional Long finds that the public will
have spent $33 billion on professional sports stadiums by the
time the last facility currently scheduled for construction is
completed.
Taxpayers also assume a large share of costs for new
professional sports facilities. Among new professional sports
facilities built since 1990, the average public share of cost
is estimated to be between 55 and 85 percent.
Clearly, having a professional sports team in one's city is
an expensive item, but it is also not a very good investment.
There are few things economists agree on, but the profession is
unanimous on this point. At our last hearing on the topic,
sports economist Dr. Brad Humphreys of the University of
Illinois stated, ``I have not found any evidence whatsoever
suggesting that professional sports stadiums create jobs, raise
income, or raise local tax revenues.'' Of course, there is a
great feeling of pride in having a team, but we also have to
recognize that doesn't necessarily create jobs or raise
revenues or grow the economy.
One of the things that I said back in Cleveland years ago
when the debate was going on over the building of sports
facilities is that, instead of building money for a new
facility, just issue bonds to buy the team. That way you don't
worry about a team leaving, and that way the public owns the
team. Then if the team goes to the World Series, then the
public shares in that revenue. Then you drive down the price of
tickets. There are all kinds of ways you can do this.
But instead what has happened is that the taxpayers get the
bill for the stadium. Even worse than that, you have
corporations that buy naming rights to make it appear as though
they built the stadium. So what you get is the public gets the
bills and the owners of the sports team get these huge profits.
It is indisputably clear that public subsidies enrich the
private owners of the teams. Look at the Detroit Tigers and
Detroit Lions. The value of the Tigers rose from $83 million in
1995 to $290 million in 2001, the year after the team moved
into their new stadium. The Lions increased in value after
moving into a new stadium even more dramatically from $150
million in 1996 to $839 million in 2006.
Economic benefit to the teams' owners was certainly the
case for President Bush, who in 1989 spent about $600,000 to
buy a small stake in the Texas Rangers baseball team. During
his ownership, Mr. Bush and his co-investors were able to get
voters to approve a sales tax increase to pay more than two-
thirds of the cost of a new $191 million stadium for the
Rangers, as well as the surrounding development.
Mr. Bush and his partners also received a loan from the
public authority charged with financing the stadium to cover
their private share of construction costs. By 1994, the
Rangers, in their new publicly financed stadium, were sold for
$250 million, a threefold increase in value in nearly 5 years,
and one that was largely attributable to the new taxpayer-
subsidized stadium. Mr. Bush personally came away with a profit
of $14.9 million. In this case, the tax-exempt financing
indisputably benefited the owners of the Texas Rangers.
How is it that critical infrastructure needs go unfunded
while luxuries like professional sports stadiums are subsidized
heavily?
The first part of the question has been the subject of
considerable discussion dating back to the 1980's. For
instance, in an article entitled, ``Holding Government
Officials Accountable for Infrastructure Maintenance,'' Ned
Regan, the long-time Republican Comptroller of the State of New
York, wrote: ``Maintenance budgets are routinely starved by
government at all levels. Neglect, not age, is the root cause
of most infrastructure failures in this country. Simply put,
deferring maintenance is a handy expedient for public officials
faced with problems in balancing their budgets.''
Now, Regan identifies two problems that account for that.
The first is that politicians like to get credit for what they
do, and the credit is more noteworthy when you can cut the
ribbon at the opening of a new facility.
He writes: ``Maintenance activities, while undeniably in
the public interest, tend to be regarded as having low
visibility and correspondingly low political payoff. A
television news editor, for example, is not likely to be
interested in bridge maintenance. Moreover, the consequences of
the failure to scrape and paint a bridge in a particular year
are not evident at the time. People do not think that the
bridge might collapse in the next year.''
The second problem is the lack of systematic funding, a
lack of a democratic and transparent process in which
infrastructure needs are evaluated. There is no process whereby
decisionmakers know, based on sound evidence and rigorous
analysis, what maintenance requirements are and what the costs
of neglecting maintenance are likely to be. Such information
could then be considered in light of available resources when
determining maintenance budgets. That is accompanied by a lack
of public information. ``As long as the public remains
uninformed about the extent to which public assets are not
being safeguarded, public officials will be encouraged to
continue the prevailing pattern of neglect.''
This is the second time this subcommittee has examined the
merits and costs of public financing of professional sports
stadiums. At our March 29, 2007, hearing we examined the
effectiveness of Congress' last attempt to curb the use of tax-
exempt financing for construction of professional sports
stadiums. In 1986, Congress passed the Tax Reform Act, which
changed the rules on tax-exempt financing. Basically, the act
excluded professional sports stadiums from a list of exceptions
to taxable private activity bonds. That should have closed the
matter, but sports stadiums continue to be built with more and
more public money, according to Professor Long.
When we discussed this specific case in detail with the
Chief Counsel of the Internal Revenue Service, who is in charge
of enforcing the regulations on tax-exempt financing, we
discovered that a significant loophole was being exploited that
permitted professional sports teams the benefit of tax-exempt
financing for sports stadiums and their exclusive, private use.
In that hearing we questioned the Chief Counsel about a private
letter ruling that enabled the New York Yankees to benefit from
a tax-exempt financing of the new Yankees Stadium and a
construction cost saving of $189.9 million, according to New
York City's Independent Budget Office.
Obviously, the 1986 act did not have the intended effect of
curbing public financing of sports stadiums' construction. As
Dennis Zimmerman testified at our previous hearing, ``Since
local taxpayers were expected to be reluctant to use general
obligation debt to pay for stadium debt service, stadium bonds
would wither. Unfortunately, the expectation was overwhelmed by
the combination of monopoly power to professional sports
leagues that maintains excess demand for franchises and stadium
proponents' use of pseudo-economic studies showing that
stadiums pay for themselves.''
Clearly, there is more work to be done. Our bridges should
be safe. Our children's school buildings should be safe and
conducive to learning. And the owners of professional sports
teams should pay for their own stadiums. To the extent that the
use of public money to finance professional sports stadiums
diverts funds and attention away from maintaining critical
public infrastructure, my hope is that these hearings will
contribute to fixing the problem, focusing a discussion on the
kind of investment that goes into these facilities, asking
about the specific economic benefits to the community,
especially those that were promised at the beginning of the
construction of many of those projects, and asking the question
about how do we meet the diverse needs in the community,
particularly where there is aging infrastructure.
Middle America, there are bridges that are falling, there
are roads that are in ill repair, there are schools that are
crumbling; yet, we see this tremendous push being made to try
to put hundreds of billions of dollars into sports stadiums.
While we love our local teams and we have a great deal of
commitment and pride in our local teams, we also know that the
public infrastructure that is needed in order to provide jobs,
to increase business activity in a community, has to be
maintained, and that infrastructure is crumbling. The money
generally comes from local and State governments, the same
place where a lot of these funds to build these facilities are
coming from.
So with that we are going to go to the first panel.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Kucinich. Again, for those who just joined us, Mr. Issa
had asked me to proceed with this hearing in the anticipation
that he will be joining us. I am going to proceed.
I am pleased to have a distinguished panel of witnesses
here to address whether professional sports stadiums divert
public funds from critical public infrastructure. On today's
first panel the subcommittee is pleased to have the following
witnesses. First of all, Mr. Eric Solomon. Mr. Solomon was
sworn in as Assistant Secretary for Tax Policy, Department of
Treasury on December 12, 2006. He joined Treasury's Office of
Tax Policy in October 1999 as Senior Advisor for Policy. He
subsequently served as Deputy Assistant Secretary, Tax Policy,
and Deputy Assistant Secretary, Regulatory Affairs, prior to
his December 2006 appointment as Assistant Secretary for Tax
Policy.
Mr. Solomon previously served at the Internal Revenue
Service from 1991 to 1996 as Assistant Chief Counsel, heading
the IRS legal division with responsibility for all corporate
tax issues, and as Deputy Associate, Chief Counsel, Domestic
Technical.
Mr. Solomon was a partner at Ernst and Young, LLP, where he
was a member of the Mergers and Acquisitions Group of the
National Tax Department in Washington, DC. He received his A.B.
from Princeton, his J.D. from University of Virginia, his LLM
in taxation from New York University. Before joining Treasury
he was a member of the Executive Committee of the Tax Section
of the New York State Bar Association, adjunct professor at
Georgetown, teaches a course in corporate taxation.
In 2006 he received the Distinguished Executive
Presidential Rank Award in recognition of his exceptional
career accomplishments at Treasury.
Mr. Arthur Rolnick is a senior vice president and director
of research at the Federal Reserve Bank of Minneapolis, an
associate economist with the Federal Open Market Committee. As
a top official of the Federal Reserve Bank, Mr. Rolnick
regularly attends meetings of the Federal Open Market
Committee, the Federal Reserve's principal body responsible for
establishing national money and credit policies.
Mr. Rolnick's essays on such public policy issues as
Congress Should End the Economic War Amongst States, a plan to
address the ``too big to fail'' problem, and the economics of
early childhood development have gained national attention.
His research interests include banking and financial
economics, monetary policy, monetary history, the economics of
federalism, and the economics of education. He has been a
visiting professor of economics at Boston College, the
University of Chicago, the University of Minnesota. Most
recently he was an Adjunct Professor of Economics at the MBA
program at Lingnan College in Guangzho, China and the
University of Minnesota's Carlson School of Management. He is
Past President of the Minnesota Economic Association, serves on
several nonprofit boards, including Minnesota Council on
Economic Education, Greater Twin Cities United Way, Citizen's
League of Minnesota, and Ready 4K, an advocacy organization for
early childhood development. He is on the Minneapolis Star
Tribune's Board of Economists, a member of the Minnesota
Council of Economic Advisors.
He has had numerous awards for his work in early childhood
development, including being named 2005 Minnesotan of the year
by Minnesota Monthly Magazine.
A native of Michigan, Mr. Rolnick holds a bachelor's degree
in mathematics and a master's degree in economics from Wayne
State University in Detroit. He has a doctorate in economics
from the University of Minnesota.
I read at length for those who are in attendance the
qualifications of these two witnesses because you need to
understand that the individuals about to testify are people
that have extensive backgrounds in the issues that are before
this subcommittee.
I want to thank them for being here.
Gentlemen, it is the policy of the Committee on Oversight
and Government Reform to swear in all witnesses before they
testify. I would ask that you rise and raise your right hands.
[Witnesses sworn.]
Mr. Kucinich. Thank you, gentlemen.
Let the record show that the witnesses answered in the
affirmative.
I would ask that the witnesses now give a brief summary of
their testimony. Keep your summary under 5 minutes in duration.
Your complete written statement will be included in the hearing
record.
Mr. Solomon, you will be our first witness, and I ask you
to proceed.
STATEMENTS OF ERIC SOLOMON, ASSISTANT SECRETARY FOR TAX POLICY,
DEPARTMENT OF TREASURY; AND ARTHUR J. ROLNICK, SENIOR VICE
PRESIDENT AND RESEARCH DIRECTOR, FEDERAL RESERVE BANK OF
MINNEAPOLIS
STATEMENT OF ERIC SOLOMON
Mr. Solomon. Mr. Chairman, thank you for the opportunity to
appear before you today to discuss important Federal tax issues
regarding tax-exempt bond financing.
Tax-exempt bonds play an important role as a source of
lower-cost financing for State and local governments. The
Federal Government provides a significant Federal subsidy to
tax-exempt bonds through the Federal income tax exemption for
interest paid on these bonds, which enables State and local
governments to finance public infrastructure projects and other
public purpose activities at lower cost.
The cost to the Federal Government of tax-exempt bonds is
significant and growing. Unlike direct appropriations, this
Federal subsidy is not tracked in the appropriations process.
Tax-exempt bonds also are less efficient than direct
appropriations because of pricing inefficiencies. The steady
growth in the tax-exempt bond volume reflects the importance of
this incentive for public infrastructure. At the same time, it
is appropriate to ensure that the Federal subsidy for tax-
exempt bonds is properly targeted and is justified in light of
its significant Federal cost.
I will touch briefly on the legal framework for tax-exempt
bonds. I then will highlight certain tax policy considerations
regarding tax-exempt bonds in general and stadium financing in
particular.
The statute provides for two basic types of tax-exempt
bonds: governmental bonds and private activity bonds. The
current legal framework under the code treats bonds as
governmental bonds if they are either used primarily for State
or local governmental use or payable primarily from
governmental bonds. Thus, the code generally treats bonds as
private activity bonds only if they exceed both a 10 percent
private business use limit and a 10 percent private payments
limit.
Tax-exempt governmental bonds may finance a wide variety of
projects. Tax-exempt private activity bonds may only finance
specific types of projects authorized by the code. Most private
activity bonds are subject to an annual State bond volume cap.
State and local governments often finance traditional public
infrastructure projects with governmental bonds based on
governmental use of those projects. By comparison, they finance
stadiums used for private business use with governmental bonds
based on governmental payments for the bonds, including general
taxes.
Next I want to highlight certain tax policy considerations.
Here it is important to keep in mind that the tax-exempt bond
provisions under the existing statutory framework implement a
key policy to give State and local governments needed
flexibility and discretion to finance a range of projects with
governmental bonds and public/private partnerships when they
determine that the projects are important enough to warrant
commitment of State or local governmental funds.
At the same time, it is important to properly target and
justify the Federal subsidy for tax-exempt bonds. The tax
policy justification is strongest for traditional public
infrastructure projects with clear public purposes. The
justification is weaker for projects that lack a clear public
purpose or that provide significant benefits to private
businesses.
Some have asserted that the availability of governmental
bonds for stadiums with significant private business use
represents a structural weakness in the targeting of this
important Federal subsidy. Several options could be considered
to target the tax-exempt bond subsidy further to limit the use
of governmental bonds for stadium financing.
One option that Congress could consider would be to repeal
the private payments in the private activity bond definition
for stadiums only. This possible change would prevent use of
governmental bonds to finance stadiums when private business
use exceeds 10 percent.
In its January 2005 tax reform options, the Joint Committee
on Taxation included this option to repeal the private payments
limit for stadium financing.
A second option that Congress could consider would be to
allow tax-exempt private activity bonds to finance stadiums
under the bond volume cap. This option would require stadiums
to compete with other projects for bond volume cap. This option
could be combined with the first option to allow governmental
bonds for governmentally used stadiums and private activity
bonds for privately used stadiums.
A third option that Congress can consider would be to ban
tax-exempt bond financing for professional sports stadiums
altogether. Prior legislative proposals have suggested this
option, but these proposals have never been enacted into law.
A final, broader possible option that Congress could
consider would be to repeal the private payments limit in the
private activity bond definition altogether. This possible
change would eliminate use of governmental bonds for all
projects when private business use exceeds 10 percent. This
would affect stadiums and all other types of projects with
significant private business use that otherwise could be
financed with governmental bonds based on governmental
payments. The Joint Committee on Taxation's January 2005
proposals also discuss this broader option.
At this time the administration does not take a position on
any specific policy option on possible legislative changes.
This topic raises difficult questions which will require the
balancing of interests of State and local governments in having
flexibility to determine what projects are appropriate and the
Federal interest in effectively targeting this Federal subsidy.
In conclusion, the administration would be pleased to work
with the Congress in reviewing possible options to try to
improve the effectiveness of this important Federal subsidy for
tax-exempt bonds.
Thank you, Mr. Chairman, for the opportunity to appear
before you today. I would be glad to answer any questions.
[The prepared statement of Mr. Solomon follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Kucinich. Thank you, Mr. Solomon.
Mr. Rolnick.
STATEMENT OF ARTHUR J. ROLNICK
Mr. Rolnick. Thank you, Mr. Chairman and members of the
subcommittee, for having me here today.
Before I begin, let me say the views that I am about to
express are my own and not necessarily those of the Federal
Reserve Bank of Minneapolis or the Federal Reserve system.
There is likely no major metropolitan area in this country
that has not been held hostage at some point by the owner of a
sports franchise who threatened to move his team elsewhere if
he did not receive a new taxpayer-funded sports complex.
Indeed, such economic blackmail even affects many of our
smaller communities, as minor league sports teams have also
learned to play this rent-seeking game.
Being from Minnesota, I can personally attest to this rent-
seeking game as the Minnesota Twins, after a 10-year campaign,
finally persuaded a previously reluctant State legislature to
hand over about $400 million in public financing for a new
stadium that is now under construction. Not to be outdone, the
Minnesota Vikings are currently pressing the legislature for
their own share of public largesse, and who can blame them. As
long as governments are willing to hand over limited public
resources, these teams would be foolish not to accept them.
But make no mistake: it is not just sports teams that
demand public money from cities and States. The State and local
funds spent competing for sports franchises, though
conspicuous, probably represent only a fraction of the billions
of dollars spent on more than 8,000 State and local economic
development agencies competing to retain and attract businesses
through the use of preferential--and let me underline
preferential--taxes and subsidies. Businesses know they can get
public funding by threatening to move, forcing State and local
governments into competition for business that has become
economic warfare.
To be clear, from a national perspective, the so-called
economic bidding war among States does not create jobs. It only
moves them around from one city to another, from one State to
another. This is what economists call a zero sum game. It is a
zero public return. Indeed, it may be a negative sum game.
While States spend billions of dollars to retain and
attract businesses, State and local governments struggle to
provide such public goods as schools and libraries, public
health and safety, and the roads, bridges, and parks that are
critical to the success of any community. Indeed, we in
Minnesota have special cause to speak to the importance of
adequate funding for infrastructure following the tragic
collapse of the I-35 W bridges over the Mississippi River.
Something is wrong with this picture, and I am going to
argue only Congress can fix it.
I am here today largely to discuss the wasteful nature of
this bidding war among States and to offer a recommendation to
end this inefficient use of scarce public resources. However,
in addition, I will briefly offer a proposal for the best use
of public resources for economic development--that is early
childhood development. I will argue that you should think of
early childhood development as economic development with an
extraordinary public return. I offer more description in my
full testimony that has been submitted to the subcommittee.
To begin, it is important to recognize that not all
competition among State and local governments is bad.
Competition for businesses through general tax and spending
policies--that is, policies that are non-preferential that
apply to all business--is beneficial. So, for example, we want
Minnesota and Wisconsin competing to see which State can offer
the best public education at the lowest cost. Such competition
helps State and local governments determine the amount and
quality of public goods for which their citizens are willing to
pay and to provide these goods efficiently.
But from a national perspective, when competition takes the
form of preferential treatment for specific businesses, it
creates, at best, a zero sum game. It is more likely to create
a competitive game, in fact, that mis-allocates private
resources and causes State and local governments to provide too
few public goods.
When a business is enticed by being offered preferential
favors to relocate, there is no net gain to the overall
economy. Jobs are simply moved from one location to another.
Furthermore, on closer examination, there will be a loss. There
will be fewer public goods produced in the overall economy
because in the aggregate States will have less revenue to spend
on public goods. In addition to the loss of public goods, the
overall economy becomes less efficient because output will be
lost as some businesses are enticed to move from their best
locations.
Moreover, it is assumed in my remarks so far that States
have the information to understand the businesses they are
courting. In practice, States have much less than perfect
information, assuming States are so handicapped they will
finance some businesses that private markets deem too risk to
fund.
How can this economic bidding war among State and local
governments be brought to an end? The States won't, on their
own, stop using subsidies and preferential taxes to attract and
retain businesses. As long as a single State engages in this
practice, others will feel compelled to compete. Only Congress,
under the Commerce Clause of the Constitution, has the power to
enact legislation to prohibit States from using subsidies and
preferential taxes to compete with one another for businesses,
and only Congress can enforce such a prohibition.
There is a congressional precedent for such action. In
1999, then-Representative David Minge of Minnesota introduced
the Distorting Subsidies Limitation Act. This bill would end
these harmful subsidies by, in effect, taxing them out of
existence. Under the bill, subsidies provided by a State or
local government to a particular business that is a
preferential subsidy to locate or to remain within the business
jurisdiction would be taxed at such a level so as to render the
subsidy moot. For example, if the subsidy was taxed at 100
percent, they would be rendered ineffective. State and local
governments would thus lay down their arms in this escalating
economic war and the resulting truce would benefit all society.
If the subsidy war is the wrong way to promote economic
development, what is the right way? The tried and true
investments that have served economies well, especially since
the second half of the 20th century, are public investments in
human capital. To that end, it is also time for congressional
action on proposals to increase funding for at-risk kids for
early childhood education. These proposals have gained national
attention in recent years because of the overwhelming research
by neuroscientists on brain development and by economists on
economic returns to high-quality early education programs. We
have estimated the annual rate of return on a high-quality
early education program, inflation adjusted, to be as high as
18 percent.
In summary, the evidence is clear: compared with billions
of dollars in public subsidies to professional sports teams and
other private businesses, investment in our infrastructure,
both physical and human, especially investment in early
childhood development for at-risk children, is real economic
development, and it is economic development with a very high
public return.
Thank you for this opportunity to testify on this important
policy issue. I look forward to answering questions.
[The prepared statement of Mr. Rolnick follows:]
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Mr. Kucinich. Thank you very much for your testimony, Mr.
Rolnick and Mr. Solomon.
Before we go to questions, I want to acknowledge the
presence of Mr. Davis and Mr. Tierney and Mr. Cummings. Thanks
to all of you for being here.
If the gentlemen have an opening statement, we will be glad
to include it in the record.
At this point we are going to go to questions. I will begin
with Mr. Solomon.
I think that I should be relieved to learn from the written
testimony that ``the tax policy justification for a Federal
subsidy for tax-exempt bonds is weaker when State or local
governments use governmental bonds to finance activities beyond
traditional governmental functions, such as a provision of
stadiums, in which the public purpose is more attenuated and
private businesses receive the benefits of the subsidy.'' That
is a direct quote.
I think that means that you don't think that building
professional sports stadiums with public money is a good idea
when the traditional government function of making sure bridges
are safe isn't being fulfilled. Is that a fair rendering of
your position?
Mr. Solomon. Mr. Chairman, you raise very important policy
concerns, because it is necessary to ensure that the tax-exempt
bond program is properly targeted so that it is most
effectively used and so that the Federal subsidy is justified
in light of the revenue costs and the other costs imposed.
What Congress has done, what the Internal Revenue Code does
is it strikes a balance between two different interests. One
interest is that it wants to target the use of tax-exempt bonds
to critical projects, critical governmental projects, but at
the same time, the statutory structure of the Internal Revenue
Code does provide currently flexibility and discretion for
State and local governments to finance projects that do have
private use if the State or local government finds the project
sufficiently important to warrant the commitment of State and
local government funds to carry out those projects.
So the current structure of the Internal Revenue Code does
permit, in situations where there is some private use, it
permits State and local governments to decide to go forward
with tax-exempt bonds when there is a commitment to use
governmental funds.
Mr. Kucinich. Right. I understand that. Nevertheless,
Federal taxpayers will subsidize sports stadiums' construction
to the tune of about $2 billion, according to the written
testimony of Professor Long. What did Federal taxpayers receive
in exchange for that?
Mr. Solomon. Well, what the code does is it leaves it to
the discretion. The current Internal Revenue Code leaves to the
discretion of State and local governments to make the decision
whether or not these projects are sufficiently important.
I would also just want to add, as an observation, a GAO
report in 2006 noted that there were about $5.3 billion of
stadium tax-exempt bonds. Total, there are about a trillion
dollars in governmental bonds.
Mr. Kucinich. Trillion?
Mr. Solomon. Trillion.
Mr. Kucinich. OK. Well, I would like to go to this issue of
the benefit principle of taxation. You are familiar with that.
In part, it is based on the idea that those who benefit from
services should be the ones who pay for them. Now, let's say
that City A is told by the owner of a professional sports team
that they will have to finance a new stadium or the team will
leave, and let's further say that City B offers twice as much
to the team to lure it away from City A.
Now, of course, all the bond financing offered by City B
and City A, if they choose to give the team what it wants, will
be tax exempt. Apply the benefit principle of taxation to this
transaction. How do Federal taxpayers benefit from the team
moving to City B or, for that matter, staying in City A with a
new stadium? How do they benefit?
Mr. Solomon. Well, the current structure of the Internal
Revenue Code leaves discretion to the State and local
governments to make these decisions, and that is part of the
framework. We present in our written testimony possible options
that one might consider if one were to decide that it is
inappropriate policy.
Mr. Kucinich. So you really can't say, is what you are
saying?
Mr. Solomon. I am not an expert on local economic issues of
the determinations that State and local governments make as to
what appropriate projects are.
Mr. Kucinich. Let me try one more question.
Mr. Solomon. Sure. Of course.
Mr. Kucinich. If the economists are right that building
professional sports stadiums do not raise incomes, create jobs,
or increase revenues, while new ball parks do increase the
value of the team franchise, would you say that building a
professional sports stadium is mostly a private activity, or is
it a public activity?
Mr. Solomon. State and local governments and those who are
in State and local government need to make these decisions. And
they make these decisions not necessarily on dollars and cents.
Mr. Kucinich. I see. I got it. I got it. I know where you
are coming from.
Mr. Rolnick, would you like to answer that question?
Mr. Rolnick. Well, our State and local officials are in a
difficult position. If you are the Governor of Minnesota, you
don't want to lose the Minnesota Vikings. Even if I convince my
Governor that it is not a question of jobs, it is very
difficult to stand back if another State is going to build a
new stadium. So, as I said in my earlier remarks, we put our
State and our local officials in difficult positions, and as a
result the professional sports teams have been very good at
playing one city off against another and one State off another.
My estimate is about 80 percent of professional sports
facilities have been built with public money, and that is
because they are very good at playing this game.
There is no public benefit here, Mr. Chairman. Your
question, the way you raise it, is correct. This is not a
public good. These are private goods and they would be produced
if we ended the bidding war.
Mr. Kucinich. Mr. Solomon, do you want to add something?
Mr. Solomon. Mr. Chairman, yes, if I might just add one
point.
Mr. Kucinich. Sure.
Mr. Solomon. This issue is broader than just stadiums. This
issue arises with respect to other kinds of redevelopment
projects.
Mr. Kucinich. Right.
Mr. Solomon. We are focusing today on stadiums, but it
could be other kinds of redevelopment.
Mr. Kucinich. We understand.
Mr. Solomon. We will have the same kinds of policy issues.
Mr. Kucinich. Right. I mean, that point was made in the
testimony.
I am going to go to Mr. Issa.
Thank you for joining us. The ranking member, the gentleman
from California.
Mr. Issa. Thank you, Mr. Chairman. Again, I apologize.
Because of two markups in 1 day, I have been going between two
other places.
Mr. Chairman, I would ask unanimous consent that my written
opening statement be put in the record.
Additionally, the part you can't just have in the record is
a wholehearted congratulations to the chairman on the
performance of the Cleveland Indians. As someone born and
raised in Cleveland and someone who was born in 1953--and that
was a good year for Cleveland. We went through a few bad years
after that. But certainly, regardless of this being the second
hearing and the second question on Jacobs Field and plenty of
other places, I think we can both, as Clevelanders, take pride
in the performance of the Indians. I just want to make sure
that got in the record.
Mr. Kucinich. You know what? I want to thank my good friend
for pointing that out, and I would like to further say that
Jacobs Field didn't make the Indians; the Indians made Jacobs
Field. Thank you.
The gentleman may proceed.
Mr. Issa. Thank you.
I am going to just broaden the subject, Mr. Solomon,
because I think you are exactly right. We provide tax-free
municipal bonds to build schools, don't we?
Mr. Solomon. That is correct.
Mr. Issa. And kids graduate from high school and leave
Cleveland, like me to go to California. I graduated from Kent
State, left. So Kent State's bonds to build university
facilities, in fact, may have benefited southern California and
the companies I built out there, but, in fact, it was paid for
primarily Federal offset, but also Ohio State offset for those
bonds; isn't that right?
Mr. Solomon. Correct.
Mr. Issa. And that goes for noise abatement retaining
walls. It goes for lots of things which are at least partially
financed by debt instruments sold with Federal and State
exemptions. So I guess the first question is: should we, in
fact--and this may be what you were leading to--question what
narrow, dramatically, what in fact, can receive at least
Federal tax exemption, since today everything a State chooses
to go into debt for is a benefit subject, of course, only to
the AMT where we sometimes get back what we lose elsewhere?
Mr. Solomon. Just to add to the point that I made before,
again, to broaden our conversation is this issue with respect
to situations whether private use, State and local governments
are permitted to issue tax-exempt bonds where the decision is
made to use public funds.
And it is not limited to situations with stadiums. It
includes convention centers and all sorts of other kinds of
projects. The question is how much discretion should be left to
State and local governments to make these decisions. And one
might make a decision, a policy decision with respect to
stadiums, might make a different policy decision for other
kinds of decisions. But the question is how much and how
specifically you might want to limit that authority.
Mr. Issa. Well, let me ask a question that sort of goes to
the one thing that I think we all understand, which is cities
can't print money. States can't print money. Only the Federal
Government prints money, so only the Federal Government can
essentially monetize its debt; is that correct in your
analysis?
Mr. Solomon. Well, the Federal Government----
Mr. Issa. I know we don't officially monetize our debt, but
we certainly have the ability to. We could monetize our debt.
We have no limit to the amount of debt that we can take on at
the Federal level, but, more specifically, States and local
governments have debt ratings. If they get too much debt
relative to their current earnings, income, and taxes, they
ultimately pay a higher percentage and they reach a cap where
they can no longer borrow; is that correct?
Mr. Solomon. Well, I am not an expert on State and local
government financing, but certainly, to the extent that State
and local governments take on too much debt, it creates
difficulties.
Mr. Issa. So I will just ask it as a closing question,
because we are going to run out of time before the vote.
Essentially, the one thing that we are leaving out of this
equation is that cities, using cities exclusively here for a
moment, cities make a decision about where to invest their
debt, and if they invest, as the city of San Diego did, in a
number of projects, including a significant new convention
center and PetCo Park--looks like Jacobs Field, only with a
little more sunny days--in San Diego--and the Padres are doing
OK, too, but thank you.
The fact is, they made that decision. They used up a
certain amount of debt they could have. And if those debt
instruments pay no dividends, pay no revenue, then they are
paying for them out of their general fund, so they particularly
do that. The cities make that decision.
Why, in your opinion, are cities making that decision if it
is a bad business investment? What do you think the real reason
that cities are voluntarily doing this and continuing to do
this bidding process?
Mr. Solomon. Because the cities believe that there are
various benefits. Perhaps they cannot be specifically
identified, but there are various and tangible benefits. Of
course, there are political constraints on their decisions, as
well as financial constraints.
Mr. Issa. Thank you.
Thank you, Mr. Chairman. This really is an opportunity for
us to question not just the bigger picture of the tax
structure, but I really appreciate the fact that you have given
us a chance to look at how various cities either are or are not
spending their money wisely, and I appreciate it.
Mr. Kucinich. And I thank the ranking member.
Mr. Tierney, if he has questions, is recognized.
Mr. Tierney. I will be happy to do so.
Mr. Kucinich, I would be happy to invite both of you
Indians fans to Fenway Park Friday and Saturday night where it
is obvious you will be getting a thumping, the Indians.
Mr. Kucinich. You are out of order, of course. [Laughter.]
Those are such famous last words.
Mr. Tierney. Yes, they have been some time in the past.
Mr. Kucinich. Where is the gavel? OK. Go ahead.
Mr. Tierney. Mr. Solomon, thank you, and thank you also,
Mr. Rolnick. I appreciate your testimony here today.
Mr. Solomon, you made some suggestions in your written
testimony that I welcome, and I notice that most of the
solutions that you proposed are statutory in nature. I am
wondering why that is. Don't you feel as though you could do
more on the regulatory basis using your existing powers?
Mr. Solomon. Our job is to interpret the statutory
framework, and the statutory framework we believe is clear that
the statute and the legislative history are clear that bonds,
in a situation where there is private use, can nevertheless
qualify as governmental bonds as long as the bonds are paid
from governmental funds, including generally applicable taxes.
So we believe that the statute and legislative history put that
constraint upon us.
The 1986 legislative history is very clear that a bond can
still be treated as a governmental bond, even if there is
private use, as long as the bonds are paid from generally
applicable taxes.
Mr. Tierney. So are you indicating that you don't think
that you could just determine that a PILOT that was used
specifically for stadium construction is not generally used for
public purpose and make that determination? Do you feel
constrained from doing that?
Mr. Solomon. We do not think that we could write
regulations that say that stadium financing cannot be done
through the use of public funds. We do not believe that we have
that authority. And so if a stadium is financed and the State
or local government says it will come out of general taxes or
their equivalent, which are the PILOTs, the payments in lieu of
taxes, we don't think we can change that rule. That will
require Congress to change that rule. That structure is built
into the fabric of what was done in 1986.
In 1986, Congress said you can't use private activity bonds
for these kinds of activities, but, nevertheless, Congress
nevertheless left the flexibility to say that you can engage in
these activities using governmental bonds as long as the
governmental bonds are paid for with general governmental
funds.
Mr. Tierney. Thank you for that.
I yield back, Mr. Chairman. Thank you.
Mr. Kucinich. All right.
I thank the gentleman. I just want to ask a quick question
here on what Treasury was trying to do with the PLR and the
rule change.
Mr. Solomon, there are two accounts of the IRS's attempt to
regulate PILOTs for stadium construction, one presented by Mr.
Korb in his March 29th testimony to this committee, and a
contrary account that I believe is more consistent with the
regulatory history. Mr. Korb repeatedly testified that the IRS
was compelled by the 1997 regulations to conclude for its 2006
private letter rulings that PILOTs used to pay for bonds issued
to finance stadium construction should be treated as generally
applicable tax and not a special charge.
He further testified that the proposed regulations were
designed to close the loophole and make it more difficult to
use PILOTs. Under the contrary account, the IRS's issuance of
the private letter rulings in 2006 made it easier, not tougher,
to publicly finance stadiums by explicitly allowing stadiums to
be financed by PILOTs made by the teams, instead of the
previous practice of financing stadiums through the imposition
of taxes borne generally by the public, like entertainment and
sales taxes.
The private letter rulings, far from being compelled by the
1997 regulations, presented a new and arguably impermissible
interpretation of them and prompted the IRS to propose
regulations that would put PILOTs on a firmer regulatory
footing. This account is supported by a number of facts, many
of which are ignored by Mr. Korb, including the fact that the
proposed regulations would delete the following sentence from
the existing regulation. Here it is: ``For example, a PILOT
made in consideration for the use of property financed with
tax-exempt bonds is treated as a special charge.'' This
language suggests that PILOTs should not be permitted to fund
stadium construction.
Because a full response to this question is not possible
here, given the time constraints, I am going to present this
question to you in a more-detailed form of a letter, and I
wonder if you have any basic view on which of these accounts is
more accurate.
Mr. Solomon. Very briefly, the private letter rules issued
by the Internal Revenue Service to private taxpayers preceded
the proposed regulations. Proposed regulations were intended to
tighten the rules, to tighten the rules with respect to
payments in lieu of taxes, to cut back on the use of payments
in lieu of taxes. So chronologically the private letter rules
preceded the proposed regulations. The proposed regulations are
intended to tighten the standard for treating payments in lieu
of taxes as the equivalent of general taxes.
Mr. Kucinich. I thank the gentleman. We will followup with
that letter.
[The information referred to follows:]
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Mr. Kucinich. We are going to have to recess. We have a
number of votes. Staff informs me a 45-minute recess would be
appropriate.
We are done with Mr. Solomon. Mr. Solomon, do you have to
leave?
Mr. Solomon. I have to leave at 4, so I could stay for a
while.
Mr. Kucinich. Well, I am going to ask you gentlemen if you
can stay. It is up to you. I don't have any more questions of
you, but I do have some questions of Mr. Rolnick.
Mr. Rolnick. We will come back.
Mr. Kucinich. We will come back, so the committee is
recessed for 45 minutes. Thank you.
[Recess.]
Mr. Davis of Illinois [presiding]. The meeting will return
to order. Who knows? Our chairman may very well have been
summoned by a reporter who wanted to know about the White House
and things like that. The chairman has not made it back, and so
we will try to begin, because I wanted to get a question in to
Mr. Solomon if I could before he had to leave.
Mr. Solomon, prior to the 2006 IRS private letter ruling
for the Yankee Stadium, had any tax-exempt stadium construction
debt been serviced with a payment in lieu of taxes?
Mr. Solomon. I do not know the answer to your question,
Congressman. The private letter rule process is run by the
Internal Revenue Service. I am in the Office of Tax Policy. I
could get back to you with respect to the answer to your
question, but I would have to ask them and I would have to
research the private letter rulings. So what I would do is I
would go to the IRS, their rulings branch, and ask them what
they have done in this area. I am sorry that I can't answer
your question off the top of my head.
Mr. Davis of Illinois. All right. We would appreciate if
you could send us the answer to that in writing.
Mr. Solomon. Yes, sir.
Mr. Davis of Illinois. You also testified that you have
proposed rulemaking that would tighten the PILOT rules. If
those rules had been in effect when the Yankees'
representatives applied for a private letter ruling, would they
have been able to use a PILOT to service those bonds?
Mr. Solomon. I can't speak about any particular taxpayers
because of matters of taxpayer confidentiality. I can tell you
that the proposed regulations do state that a fixed payment
cannot qualify as a payment in lieu of taxes, so a fixed
payment, rather than one that is tied to property taxes, that
is either tied to valuation either in proportion evaluation or
a certain amount different from what would be charged for
property taxes, a fixed payment would not qualify under the
proposed regulations, which is a tightening of the rules.
Mr. Davis of Illinois. All right. Thank you.
Mr. Rolnick, let me ask you, if I could, when public
resources are used to finance or subsidize private deals, what
should be the expected return? I mean, what should the public
expect in return for that investment? I mean, you would have to
call it an investment or a give-away, in a sense, but I would
call it an investment. What should the public expect in return?
Mr. Rolnick. Address the question of public investments,
public funds going to private investment. Where you stand
matters a lot. If you are looking, do you think very parochial
view? If you are the city of St. Paul and you attract a new
software company, that creates jobs in the city. It has
multiplier effects, meaning the new jobs, people spend money,
and it is a way to enhance your economic activity, and actually
you might end up with more revenue that way to provide the
public services you want, and that is usually the rationale.
The problem with that perspective, it falls apart pretty
quickly once you take a broader perspective. Suppose, for
example, the company that you just lured to St. Paul came from
Minneapolis, so the positive effects in St. Paul are negative
effects in Minneapolis. The positive multiplier effects in St.
Paul are negative multiplier effects in Minneapolis.
So from the State's point of view--so you are not wearing
your city hat, if you will, you are wearing your State hat, you
are the Governor of the State and you are watching public
money, which you desperately need for your public
infrastructure or you could use to lower taxes for all
businesses. You are getting a zero public return. Even though
St. Paul is going to get positive return, Minneapolis is
getting a negative return.
In total, if by the public you mean the citizens of the
State, there is a zero return. In fact, as I argued earlier,
you could make the case it might be negative because you are
interfering in market location decisions, and many times I
would argue these subsidies are bluffs. That is, it would have
happened, anyway, even without the incentives.
Every once in a while the incentives do affect a location
decision, and you have to wonder if that is the best location
decision for that company.
So your question, at a parochial level it might look like a
positive return, but once you look at a broader level it is a
zero return and maybe a negative return to the public.
Mr. Davis of Illinois. Well, let me ask, What if the
proposers are suggesting that you are going to draw people into
the area who otherwise would not come, and that there is going
to be some residual impact that will go to other places outside
of what it is that you are primarily dealing with.
Mr. Rolnick. Mr. Chair, I think you still run into the same
problem. Where are they coming from? In Minnesota, for example,
we now have something called the Job Z Zone, which is to try to
promote economic development in out-State Minnesota with
subsidies and preferential tax treatment, and some of the
relocation would have happened anyway. Some of it is coming
from the Twin Cities. Some of it is coming from Wisconsin. So
guess what? The State of Wisconsin now has their Job Zone, and
they are now attracting companies from Minnesota to go to
Wisconsin.
So at the end of the day, if you look at the big picture of
the game, the winners are these companies that are footloose
and are able to take advantage of playing one city or one State
off against another, but the public is not benefiting. There is
no new jobs there; they are just being moved around.
If there are spill-over effects, the market is very good at
capturing spill-over effect synergies by being around other
companies. They know that. Companies are very good at location
decisions. Generally speaking, the best companies, the ones
that are going to create their jobs in the future, they want to
be around educated workers, they want to be around highly
educated, institutional arrangements so that I have argued for
many years the best way to promote an economy locally,
regionally, nationally, and internationally is to do a better
job educating your kids and educating your workers.
Mr. Davis of Illinois. Thank you very much.
I see that the chairman has returned.
[The prepared statement of Hon. Danny K. Davis follows:]
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Mr. Kucinich [presiding]. I thought you looked pretty good
there, Chairman.
I want to thank Mr. Davis. Actually, I was kind of admiring
him sitting here, because I was listening to that rich,
mellifluous voice, taking lessons. Thank you very much, Mr.
Davis.
Mr. Solomon, I am informed, needs to leave to keep another
commitment, so you are discharged. The committee thanks you.
Mr. Solomon. Thank you.
Mr. Kucinich. Thank you, sir.
Mr. Issa.
Mr. Issa. I will do a couple more questions, and I, too,
thank you, Mr. Solomon. You were a big help to us looking at
the problem in a larger way.
I guess you get to be the only person, so you get all the
questions now. If the State of California has a 10 percent
income tax, the State of Florida has no income tax, isn't that
every bit as much one State competing against another for a
zero sum gain?
Mr. Rolnick. In my earlier testimony I mentioned there is a
form of competition that, after all, is good competition,
effective competition. It is when cities and States compete to
see who can provide the highest quality public goods at the
lowest cost. Then people vote with their feet, so a high tax
State like Minnesota provides, on average, pretty good public
services. We have and we have been known to have terrific
educational system, high-quality workers. You, as a citizen,
can decide to move to Minnesota and pay higher taxes or move to
another State, like Florida, that has lower taxes, and in turn
the public services aren't going to be as good.
It is very difficult for State and local officials to
decide how much you should produce. The ability for people to
choose where they want to live is one way, the market, if you
will, and that is the good competition that can help State and
local officials decide.
So the point of your question is a good one. There is a
form of competition. It is non-preferential. It is the type of
goods that benefit all society, what economists call public
goods non-rivalrous; that is, education, safety, good air
quality. These are all things we all benefit from. That is a
clear distinction between private goods. The market works well
for private goods. We don't need government interfering there.
Mr. Issa. You know, I appreciate that, but let me
hypothecate another question, if you will.
Mr. Rolnick. Sure.
Mr. Issa. Case Western Reserve University has had a very
controversial presidency come and go. These are million-dollar
individuals. A million dollars. Now, Case happens to be
private. We can go to Kent State has a brand new almost three-
quarters of a million dollar package president. They made a
decision. A public entity made a decision to pay an awful lot
of money to get an individual. They will pay a lot of money to
get a whole wing of individuals. So when you talk about
education, which I certainly think is a core element of cities,
counties, and even States, that is just part of the package.
In Cleveland, where the chairman and I are both from, we
have one of the finest metropolitan park systems. Again, these
are part of the competition.
We have minor league teams. We have major league teams. We
have indoor and outdoor centers that have everything from the
Beach Boys playing to more intimate activities when the
basketball team isn't playing. Why are those not part of the
same package of local control and local decisionmaking that a
city makes in harmony with its goal to have so many hotel
rooms, to have so much of this, that, and the next thing? Why
is that any different?
Regardless of who gets the benefit--and I appreciate that
some people would say, yes, but we are giving $400 million of
value to an already rich person who owns a professional sports
team. But if you take away who is the recipient, because, you
know, for the most part landlords are the rich, why is it that
the decision to acquire these assets aren't part of the local
decision and the right of the city to make?
Mr. Rolnick. So let me answer in a broad way with the
Minnesota example, and then I will get specifically to
Cleveland.
Minnesota has one of the best economies in this country
today. It has attracted Fortune 500 companies. I think we are
the No. 1 per capita in Fortune 500 companies. We have a very
high per capita income. We have some of the lowest unemployment
rates for many years in the country. It is a very efficient
market. So a question, how did Minnesota become that way? Was
it because of entertainment? Did they get there because they
had the Minnesota Twins and the Minnesota Vikings and the
Timber Wolves? Or did something else go on?
We did a study of Minnesota's economy that went back to
1920. In 1920, Minnesota's economy was well below the national
average. The big difference was after World War II the State of
Minnesota started pouring money into education. We do a much
better job now of graduating our kids from high school.
Mr. Issa. And I appreciate all of that.
Mr. Rolnick. My point is the underlying cause of the growth
was education, high quality. That attracts on its own, without
government interference, attracts the businesses.
Mr. Issa. I appreciate your opinion, but it is your
opinion. Your conclusions are drawn by a cause and effect in a
State that has professional sports, that, in fact, has been
involved in the same sort of activities of competition to
attract and keep those professional sports teams, or
corporations that might choose to move somewhere else if they
don't get tax abatement and so on.
So, although anecdotally I will accept that your truism is
probably a good one, my question was local rights, the right of
the local municipality, or State's rights to make these
decisions, right or wrong. Under federalism we start off with
the assumption that States and their derivative entities have
these rights unless we preempt them, either in the Constitution
or in statute specifically needed by the Federal Government.
So, again, why should I take away an equal right in
decisionmaking that the city of Cleveland thinks that
maintaining the league-winning Cleveland Indians is a good idea
for a city that otherwise was written off as part of the Rust
Belt with no hope decades ago, in addition to having Case
Western Reserve, Baldwin Wallace, Cleveland State, and a host
of other fine universities, parks, symphonies, and so on,
because I am a proud former Clevelander who accepts that
Cleveland has all the best things in life except weather and,
in fact, also maintains these sports teams. Why is that not a
legitimate part of the decision of the State and their
derivative entities?
Mr. Rolnick. Mr. Chair, the answer was partly in your
question. Go back to the history of the Constitution and the
Commerce Clause, what Madison and Hamilton had in mind. Under
the Articles of Confederation, States----
Mr. Issa. You had better be careful. They didn't think of
Federal income tax.
Mr. Rolnick. Well, they didn't think of that, but States
were putting taxes, imports, restricting trade among the
States. Both Hamilton and Madison were pretty good economists.
They realized that to create a strong national economy we
should not allow cities and States to interfere with interstate
commerce. We also in the Constitution prohibit States, as you
raised earlier, the right to issue bills of credit, which are
money.
I am going to argue that allowing cities and States to
preferentially go after each other's companies, whether it is
sports teams, automobile factories, is a zero sum game. By
luring an automobile company from Toledo to Detroit or vice-
versa from a national perspective doesn't create any new jobs.
The private market will take care of these companies.
Your original point with Cleveland, that is entertainment,
that is private market. If Cleveland has a good economy, it
will attract all kinds of entertainment. You don't have to
subsidize entertainment. You are assuming that if you didn't
subsidize that entertainment it wouldn't be there. I am going
to argue at a national level if we don't allow cities and
States to subsidize private companies, the private market will
work just fine. They will figure out the best location
decisions.
What the public has to do, what government has to do, is
public goods. That is not entertainment. Entertainment is a
private market system. It will work just fine. There is no
market failure.
So I would argue, if you want to argue States' rights, I
would argue this is very similar to prohibiting cities and
States from interfering with interstate commerce with taxes. It
is very consistent with making sure we have a strong national
government.
The European Union, it is interesting, one of the first
things they did is eliminated the subsidy wars that were going
on between their countries.
Mr. Issa. I know, and the Russians then bought alternative
teams. But I guess that is free market at its finest.
One final question, which is off of the core subject but
important to me.
Mr. Rolnick. Sure.
Mr. Issa. If we were to take away public bonding, do you
believe that cities, in order to ensure that they had the
facility, regardless of who pays for it, should be able to
continue using its eminent domain in order to ensure that there
was a facility in a location agreeable to the city? In other
words, Jacobs Field, if it was 100 percent privately paid,
would never have been built anywhere in downtown without the
right to condemn and take at a fair price the land that was
taken. What do you say to that?
Mr. Rolnick. My view on eminent domain and the spirit of
eminent domain, it is an abuse to use eminent domain to take
from one private company and give to another. Eminent domain
was strictly supposed to be used to build a public
institution--a library, a school, not a sports stadium. So I
have a lot of trouble.
Mr. Issa. Thank you, sir.
Thank you, Mr. Chairman.
Mr. Kucinich. My good friend from California raises some
very serious public policy questions here that I would like to
meet from another perspective.
We have the issue of the public good, as distinguished from
the private benefit. This is a consistent and common theme in
the United States, and it has been going on for over a hundred
years.
We have what is called public utilities--water systems,
sewer systems, light systems. We call airports public
utilities. It is commonly understood that the public has
certain things they can invest in in order to be able to assure
a public benefit. If we accept the argument that there is a
public benefit to having a sports team, why, then, using that
logic, could not the public use its money to buy a sports team
which then the public would own, instead of the public using
its money to buy a stadium for the private owners while the
owners still own the team? Do you see where I am going with
this?
Mr. Rolnick. Yes.
Mr. Kucinich. Would you comment on that?
Mr. Rolnick. I have heard the argument before, Mr.
Chairman, in my mind, two bad choices: either you subsidize the
stadium or you buy the team, itself. In either way I think it
is not a very efficient use of public money. I will admit there
is some publicness to professional sports teams. We can all
root for our team without ever having to go to a game, to not
have to pay a dime. When economists have tried to measure the
value of that publicness, it falls far short of owning a team
or buying a stadium.
In Minneapolis, at the time that we laid out $400 million,
when Hennepin County, through a sales tax, laid out $400
million for that stadium, you can argue maybe they could have
bought the team, whatever. At the same time, they were closing
libraries in the city of Minneapolis, reducing the hours of the
ones that were left open. So recognize, as economists will say,
there are opportunity costs here. Lest we think that business
you can make a lot of money at----
Mr. Kucinich. Right. It is conceivable.
Mr. Rolnick. That is a question.
Mr. Kucinich. Is it conceivable that if you had a team--
now, we are looking at figures that show that the value of
teams go up when the public throws in an investment of a
stadium.
Mr. Rolnick. Right. And you would like----
Mr. Kucinich. Some of those values go up tremendously. So
is it conceivable that if a community owns a team and the value
of the team goes up and maybe they get into the playoffs and
win a championship and go to the World Series, that you could
actually use those revenues to reduce taxes in a community?
Mr. Rolnick. Mr. Chairman, they like to say in Minnesota we
are all above average. All teams can't be above average, and
there are going to be some losing teams.
Mr. Kucinich. Right.
Mr. Rolnick. Now is a State then going to be in a position
to have to purchase a high-price pitcher so we can have a
winning team? I would rather have my public officials spending
time concentrating on public goods like early childhood
development.
Mr. Kucinich. I am not disagreeing with that, but I think
that a case could be made. When is the last time a major league
chain was actually worth less money in succeeding years, that
it dropped in value? When was the last time that it lost
significant amounts of money? I am talking about two books
here.
So the point I am making, because in Cleveland, for
example, having major league sports is a big deal. It is. When
we had the debate over Gateway years ago, I actually opposed
building it, and did so publicly because I felt that the
taxpayers--well, some of the same arguments that you are
raising today. We had Municipal Stadium, where the Indians and
the Browns played.
What I proposed is if we wanted to assure that the teams
stay in town--and that is really the issue here. The issue is
always whether the teams are going to stay in the city. Why do
people build stadiums? Why is the public interested in
investing? They want to make sure they don't lose the team.
So if the question is keeping the team, then it seems to
me, if that is the public good we are talking about, then I
don't see anything wrong--and I know my friend here from
California might have a different opinion----
Mr. Issa. From Cleveland in California.
Mr. Kucinich. From Cleveland in California--and I want to
take issue with your indirect criticism of our winters.
Mr. Issa. I was talking about the summers.
Mr. Kucinich. Oh, the summers. We are one of the few places
in America which has a ski resort a few miles from a steel
mill.
The point being that I don't think that public ownership of
these franchises should be de-linked from a public good for the
community; that it might be harmonious.
Now, when we get to the actual ranking what the priorities
are in a community--to repair your bridges, are your schools
falling apart, what kind of condition are your roads in. Here
again, just before you came in what I suggested, if a city
actually invested in a team and owned part of a team, they
could take the profits from that and pour it into reducing
taxes or providing services.
I know, again, the example is of private enterprise to say
wait a minute, you are getting into private enterprise. But
some people say that, too, of water systems, sewer systems,
electric systems. I am just injecting that as another dimension
in this which seldom gets discussed and it is one of the
reasons, motivating factors that I have brought that forward.
Mr. Issa, do you have any other questions? We will go to
the next panel.
Mr. Issa. No. I think it has been an excellent panel. Thank
you.
Mr. Kucinich. All right. I will just ask one more question.
The Governor of Minnesota had reportedly vetoed at least
one increase in the gasoline tax which funds bridges and road
repair prior to the I-35 West bridge collapse. He signed a bill
permitting the increase in the Hennepin County sales tax to
fund a new stadium for the Twins during that same period. So
there is a political process here that needs to be reviewed.
Should it give Congress comfort that elected officials
will, on their own, make the tough choices to prioritize
critical public infrastructure over give-aways to private
concerns? Again, that is the dynamic tension we are looking at
here, to go back to my friend from California. I mean, we have
to freely understand the pressures that are on communities who
don't want to lose a team. But what about it?
Mr. Rolnick. Mr. Chair, it goes back to my original point.
I think I understand your attempt to a better solution than
simply subsidizing stadium, having the city or the State buy
the team, but I think a much more effective solution is to have
Congress end the bidding war. These teams would not be
footloose and fancy free. They know where their markets are.
They are making money. They wouldn't be moving around as much
as they threaten to do if we no longer allowed cities and
States to subsidize these teams.
Mr. Kucinich. One final question, and then I will go to Mr.
Issa again.
Mr. Rolnick. Sure.
Mr. Kucinich. In our previous hearing we heard the argument
made that when one municipality lures a specific business away
from another, there could be a distributional benefit, even if
there is no net national benefit. That is, a poor community
could benefit from hosting a business that would otherwise have
been located in a more affluent community.
Can you comment on this distributional benefit to allowing
States and municipalities to compete with one another for
specific businesses?
Mr. Rolnick. Sure.
Mr. Kucinich. And does this distributional benefit justify
the Federal tax expenditure?
You can answer that question, and then I want to go to Mr.
Issa for a final question.
Mr. Rolnick. There is no evidence, Mr. Chair, that the
distributional benefits go that way. If anything, the richer
communities are the ones that outbid the poorer communities. My
home town of Detroit is an example of where you have two new
stadiums, three casinos, attempts to revitalize a community and
not look at the fundamental problem, which is educating their
kids.
These are distractions. The notion that there is going to
be distributional benefits for low-income families in these
bidding wars is, I think, unsupported by any evidence that I
have seen. If anything, these subsidies end up in the hands of
very wealthy and successful business people.
Mr. Kucinich. Thank you, Mr. Rolnick.
Mr. Issa.
Mr. Issa. There is no argument that we talk about more here
in Washington than redistribution of wealth. Nobody on the dias
here is going to say please give billionaires more money. I do
think it is interesting that if Cleveland would just buy the
Indians, then it could, of course, have a cap of $125,000 a
year for the salaries of those individuals as city workers, and
I know that would make it a much more affordable team. They
wouldn't be in the playoffs. But that is a separate question.
I will ask it in two phases. Are you aware that Minnesota
could have and perhaps should have rebuilt its own bridge that
it did deferred maintenance on and let fall down when it had a
$2.1 billion surplus? And the reason I ask that question is I
appreciate your zero sum game question, but, see, as a former
Clevelander, I am now a Californian. We contribute about one-
eighth of the cost of the Federal Government, so when the
Federal Government handed out a freebie quickly to Minnesota,
what we really did was we gave away money that we don't get
back in California. California gets back less than $0.76 on
every $1 it sends. So in the co-question of zero sum game and
redistribution, essentially wouldn't it be fair for Minnesota
to take care of all of Minnesota's responsibilities and we in
Washington to quit handing out quickie bills voted overnight in
lump sums against a bridge that doesn't even have the first
quote on it?
In fact, since your opening testimony talked about I-35 W,
why is it, with a $2.1 billion surplus, we had to vote at all?
Why wasn't Minnesota assuring the people of Minnesota that it
would rebuild their bridge that they deferred maintenance on?
Mr. Rolnick. Let me just say Minnesota, like California,
receives less in public funds than it----
Mr. Issa. But not on that day.
Mr. Rolnick. Not on that day. I really can't comment on the
details of the decisions on the bridges. They are complicated
issues, and it is being debated today. I think it is important
for government to take a lesson from what went wrong. I think
nationwide we are way under-investing in infrastructure. I
don't think Minnesota is the only case in point. I think the
argument I am trying to make today, in a major distraction, not
just in terms of money but in time, it is trying to lure each
other's companies with these tax incentives, and I would
strongly argue that if we ended this economic bidding war you
would find State and local governments doing a much better job
of meeting the direct public needs that we expect.
Mr. Issa. The reason I ask this question is, you know, I am
in southern California where we pay road taxes and we don't get
it back to build our roads, even though we are growing, so we
end up paying it with local money. Northern California and
other places like it, they get huge, huge public works projects
to build Metro. In San Francisco it is called BART. And 10.2
percent of the bonds issued--and this is, of course,
nationally, but we will just assume for a moment that it was
California--goes to transit. The debt for transit is 10 percent
of the debt, while the debt for stadiums apparently is 0.4
percent.
On a scale, realizing you would like one to be zero, but,
you know, 25 times as much spent on public transportation,
isn't that, in fact, a reasonable--if someone told you we spent
25 times as much on transit systems as we send on stadiums,
wouldn't you say, Well, that is pretty good, before you said it
should be zero, it should be infinite times? Wouldn't you say
25 times as much is pretty good?
Mr. Rolnick. So if you are in business, Mr. Chair, if you
are in business, the way you ask the question is where should
my next dollars be invested, and you are always looking for the
low-hanging fruit, the highest return. So I urge you, instead
of looking at that ratio, to say what is the return on that
public investment.
Now, as I mentioned earlier in my testimony, we did an
exercise like that with----
Mr. Issa. Recognizing that transit is one of the lowest
returns, when we build transit what we have to do is keep
subsidizing it forever. It never breaks even and never pays.
The Metro system here has $3 in subsidies for every $1 paid by
the people that ride it.
Mr. Rolnick. I know there have been some fairly
sophisticated analyses looking at how it reduces pollution,
congestion, etc. I am not defending the money going into
transportation, necessarily; I am just saying that the way you
should make these decisions is to look at the next dollar.
Where is the benefits relative to the cost the highest. When we
did that and we looked at high-quality early childhood
education starting prenatal to five, we found extraordinary
returns.
Mr. Issa. I am sure you did. Did you also look at----
Mr. Rolnick. So I will put that up against transportation
and the stadium.
Mr. Issa. Did you also look at physical fitness, health and
welfare, aspirations of young people, everything else that goes
when they go to one professional baseball game and they say, I
want to be like that. I want to join my Pop Warner and I am
going to do this. Did you apply those same metrics to that?
Mr. Rolnick. Yes, we did. We actually did, and we do know
that baseball is going to exist in this country whether we
subsidize it or not.
It was interesting, when the Minnesota hockey team left
Minneapolis for Dallas a number of years ago, what happened
with those kids who loved hockey? They started to go to the
high school games, they started to go to the college games. It
isn't that sports entertainment disappears; they started to go
to some of the minor league games. So recognize this
entertainment is going to exist, but if you don't educate those
kids starting at prenatal to five and they start school behind,
the market doesn't fix that. Those are the kids that end up
behind. Those are the kids that cost society a huge amount of
money.
Entertainment will be there. I will guarantee you if we end
the bidding war between cities and States, you will still see
virtually every one of these teams in the major cities as they
are today, and your kids will be able to root for them.
Mr. Issa. Thank you.
Thank you, Mr. Chairman.
Mr. Kucinich. I thank Mr. Issa for his questions.
I want to thank Mr. Rolnick for his participation and his
patience with this process of being interrupted by votes.
Mr. Rolnick. Thank you.
Mr. Kucinich. You are much appreciated. This committee
wants to thank you.
We are going to move on to our next panel and thank them
for waiting, as well.
On our second panel, the subcommittee is going to hear from
Professor Judith Grant Long, who is assistant professor of
urban planning at the Harvard University Graduate School of
Design. Professor Long's research interests focus on physical
planning, with particular attention to the growing role of
sports, tourism, and cultural infrastructure in cities. Her
recent publications include, Full Count: The Real Cost of
Public Funding for major league Sports Facilities; Facility
Finance: Measurement Trends and Analyses; Transforming Federal
Property Management: The Case for Public/Private Partnerships.
She is completing a book currently entitled City Sports:
Stadiums and Arenas as Urban Development Catalysts.
A certified professional planner, Professor Long has
practiced extensively at the local level of government in the
Toronto area, managing innovative strategies for downtown
development and historic preservation. Her honors include
grants and awards from the U.S. Department of Housing and Urban
Development, the IBM Center for the Business of Government, the
Canada Mortgage and Housing Corp., the Ontario Professional
Planners Institute. She is a recipient of the Gerald M. McHugh
Medal awarded by the GSD.
Professor Long served as assistant professor of urban
planning at Rutgers from 2002 to 2005, a design critic at GSD
during 2005 to 2006. She received her B.A. in economics from
Huron College at the University of Western Ontario, Canada; her
BAA in urban and regional planning from Ryerson Polytechnic
University in Canada, her MDES from GSD, and her Ph.D. in urban
planning from Harvard Graduate School of Arts and Sciences.
Welcome.
Professor David Hale is the director of Aging
Infrastructure Systems Center of Excellence, at the University
of Alabama. The AISCE works to mitigate and reverse the effects
of aging on the Nation's public and private sector
infrastructure by using systematic cross-industry application
of engineered processes and techniques. Dr. Hale's research has
resulted in over 50 scholarly and infrastructure systems
professional publications in journals and conference
proceedings.
Dr. Hale's research has been funded by the National Science
Foundation, the U.S. Department of Commerce, the U.S.
Department of Transportation, U.S. Army Corps of Engineers,
Accenture, Alabama Department of Transportation, Computer
Sciences Corp., KPMG Peat Marwick Research Foundation, Proctor
and Gamble, Sterling Software, Texas Instruments, and
University Transportation Centers of Alabama. He has consulted
for a number of the largest corporations in America.
Dr. Hale currently serves on the State of Alabama's
Infrastructure Commission and the Governor's Black Belt Task
Force and the State's Information Technology Workforce
Development Resource Center. He also directs the Aging
Infrastructure Systems Center of Excellence at the University
of Alabama.
Ms. Bettina Damiani is the project director of Good Jobs
New York, which promotes policies which hold government
officials and corporations accountable to the taxpayers of New
York City. At the Good Jobs New York, Ms. Damiani has worked to
bring more transparency and public participation to the
allocation of subsidies to large economic development projects,
including the rebuilding of the World Trade Center site and the
new Yankees Stadium in South Bronx. She is a founder of the
Liberty Bond Housing Coalition, which advocated for the use of
post-September 11th financing to create affordable housing for
middle- and low-income New Yorkers.
Ms. Damiani has a BA in communications and peace studies
from Manhattan College and has a master's of urban affairs from
Hunter College. She is a recipient of the 2006-2007 Revson
Fellowship at Columbia University.
Welcome.
Dr. Steven Maguire is currently a Specialist in Public
Financing in the Government and Finance Division of CRS. He
specialized in the economics of taxation, particularly Federal
taxation and State and local public finance.
Recent reports have addressed State use of tax-exempt
private activity bonds, tax credit bonds, the alternative
minimum tax deductibility of State and local taxes, internet
taxes, family tax issues, estate taxes, and estate business
taxation. In addition to his work at CRS, his Ph.D.
dissertation examined the public subsidy of professional sports
stadiums.
He holds a BA in economics from the University of Tennessee
and a Ph.D. in economics from the Andrew Young School at
Georgia State University. He is a member of the National Tax
Association and American Economic Association.
Members of the panel, it is the policy of the Committee on
Oversight and Government Reform to swear in all witnesses
before they testify.
[Witnesses sworn.]
Mr. Kucinich. Let the record show that the witnesses, each
of them has answered in the affirmative.
As with panel one, I will ask the witnesses to give an oral
summary of his or her testimony, to keep this summary under 5
minutes in duration. Bear in mind that your complete written
statement will be included in the written record.
I would ask Professor Long to begin. Thank you very much.
STATEMENTS OF JUDITH GRANT LONG, ASSISTANT PROFESSOR OF URBAN
PLANNING, GRADUATE SCHOOL OF DESIGN, HARVARD UNIVERSITY; DAVID
P. HALE, DIRECTOR, AGING INFRASTRUCTURE SYSTEMS CENTER OF
EXCELLENCE, UNIVERSITY OF ALABAMA; BETTINA DAMIANI, DIRECTOR,
GOOD JOBS NEW YORK; AND STEVEN MAGUIRE, SPECIALIST IN PUBLIC
FINANCE, CONGRESSIONAL RESEARCH SERVICE
STATEMENT OF JUDITH GRANT LONG
Ms. Long. Thank you, Mr. Chairman, Ranking Member Issa, and
members of the subcommittee for the opportunity to speak this
afternoon.
I am a professor at the Harvard University Graduate School
of Design. I am an urban planner and an economist. I, too,
wrote my dissertation on public subsidies for sports
facilities, so I look forward to comparing notes with Professor
Maguire.
My main area of expertise is the financing and development
of sports, convention, and tourism facilities.
The question before the committee today is whether or not
public subsidies for professional sports facilities divert
funds and attention away from critical public infrastructure.
My testimony will focus on three aspects of this issue: first,
how much public money has been spent subsidizing major league
sports facilities; second, what portion of this public funding
has made use of tax-exempt financing; and, third, are public
subsidies for major league sports facilities indeed diverting
funds from the repair and maintenance of critical public
infrastructure.
Turning to the first question, how much public money has
been spent and continues to be spent to subsidize new major
league sports facilities, this question is important because
the ongoing debate about the appropriateness of these subsidies
depends critically on our ability to accurately measure the
nature and magnitude of these underlying costs. Starting with
cost figures provided by the sports industry, public funding
for the 82 facilities opened between 1990 and 2006 totals
approximately $12 billion. This estimate is based on an average
facility price tag of $253 million, an average public subsidy
of $144 million, translating to an average public share of 57
percent.
My research, which is now shown for the elucidation of the
audience who don't have the report in front of you, is
summarized in a table on the side screens. My research shows
that these figures are, in fact, the tip of the iceberg. I
argue that governments pay far more to participate in the
development of major league sports facilities than is commonly
understood, due to the routine and ongoing omission of public
subsidies for land, infrastructure, and, as well, the ongoing
costs of operations, capital improvements, municipal services,
and foregone property tax revenues.
Adjusting for these omissions, my full count estimate of
total public funding for these same 82 facilities is $18.5
billion, representing a 55 percent increase over commonly
reported industry figures, or $6.5 billion in uncounted costs
These figures are based on an average of $80 million in
uncounted cost for each individual facility, increasing the
average public subsidy to $225 million and the average public
share of total costs increasing from 57 percent to 80 percent.
My adjusted public cost data can also be applied to broader
time periods. Over the period from 1950 to 2006, I estimate
that the public has spent just over $27 billion subsidizing
capital costs such as building, land, and infrastructure for
167 major league sports facilities built since 1950. That is an
average of $155 million per facility. Now, if we add the $6.5
billion in uncounted ongoing costs and foregone property tax
revenues for the period of 1990 to 2006, the total public cost
increases to $31.5 billion. Add the seven new facilities
scheduled to open in the period of 2007 to 2010, and the total
public cost increases by another $1.5 billion to just over $33
billion, and so on.
As to the second question, what portion of the $18.5
billion in public subsidies for sports facilities delivered
between 1990 and 2006 used tax-exempt financing, this is an
important question because of the ongoing debate about the
appropriateness of using tax-exempt bonds to finance sports
facilities, since they offer a discounted cost of capital to
private individuals paid through a reduction in Federal tax
revenues.
Interpreting my preliminary aggregate data very
conservatively, I came up with an estimate, for the purposes of
today's hearing, which was approximately $10 billion of tax-
exempt bonds based on this initial figure from 1990 to 2006 of
$18.5 billion. But then when I arrived today, I was happy to
see that Dr. Maguire actually had up-to-date data that
summarized the total amount of funds used from 1993 to 2006,
and, while the total figure wasn't provided, my quick math
estimates at about $16 billion. So, in fact, it is higher than
the $10 million that I estimated conservatively and represents
somewhere between 80 to 90 percent, depending on how one
measures these figures, of the total amount of subsidies
delivered.
Clearly it is an important, if not the major, instrument of
subsidy delivery in the context of major league sports
facilities and the public funding for them. What is less clear
is whether the total amount of public funding would be lower
for sports facilities and, in fact, how much lower would it be
if the use of tax-exempt bonds to finance sports facilities was
prohibited.
On a smaller scale but still worth noting is the dollar
value cost associated with the use of tax-exempt financing
whereby taxpayers are paying a share of reduced interest costs
through reduced Federal tax revenues. Again, based on my
conservative estimates, I was using a participation rate of
about 80 percent of the 62 facilities out of the 82 and came up
with an average debt issue of $150 million.
Then with the 2 percentage point spread between the tax-
exempt and market interest rates, the total resulting loss to
the U.S. Treasury on an annual basis would be approximately $2
million per facility per year, and over a period of 20 years
the total lost Federal revenues would be close to $2 billion.
Again, making use of Dr. Maguire's data, it is clear that this
amount would be somewhat higher.
As an example, to finance the Seattle Mariners' new
ballpark in 1997, King County issued $310 million in tax-exempt
bonds carrying an interest rate of 5.9 percent at a time when
equally rated taxable bonds issued by King County carried an
interest rate of 8 percent. The difference in tax rates
amounted to $6 million in lost Federal revenues.
Turning to the third question, could this $18.5 billion
spent between 1990 and 2006 have been better spent by investing
in critical public infrastructure, this question of opportunity
cost is particularly important given the recent and solemn
reminder in Minneapolis where a bridge collapsed killing 13
people 1 day before ground was to be broken on a new major
league ballpark financed with close to $400 million in public
funds.
A quick look at the numbers reveals that the money spent by
the public sector on major league sports facilities is relative
pocket change when compared to the money needed to maintain and
upgrade critical infrastructure. According to the University of
Alabama's Aging Infrastructure Systems Center of Excellence, it
takes approximately $100 billion annually to maintain the
Nation's infrastructure at its current level of service, and
over the next 5 years an estimated $1.6 trillion is required to
bring the Nation's infrastructure up to acceptable standards.
Viewed nationally, if public funding for sports facilities
could, indeed, be redirected, the magnitude of spending comes
nowhere near to solving the infrastructure problem. Even if the
entire $18.5 billion spent on sports facilities by the public
sector over the past 16 years could be retroactively applied to
infrastructure, only 3 months of current operating costs could
be paid.
In annual terms, the picture is bleaker, still, since
annual public spending on major league sports facilities is
between $1 billion to $2 billion per year, or about $10 million
per facility. Moreover, these figures assume that the rate of
new construction will continue, whereas by 2010 over 90 percent
of the major league facilities' stock will have been replaced
and a lull in construction activity is anticipated.
Viewed locally, however, the opportunity cost of public
funding for sports facilities is more tangible. If the $1
billion to $2 billion were diverted to the 50-plus U.S. cities
that host major league sports facilities, the impact is
sizable. Recapturing $10 million per facility per year--and
many of these cities have two--would go a long way toward
ensuring the effective management, maintenance, and upgrading
of local public infrastructure.
It is, of course, also helpful to consider diversions other
than transportation infrastructure, since the mis-match in the
relative scale of these two public spending issues may, quite
mistakenly, infer that public funding for sports facilities is
a token amount and therefore insignificant. Nationally, $1
billion per year could support a host of worthy public
programs. To take one example, $100 million is the amount the
Centers for Disease Control and Prevention plan to distribute
to help States boost their smallpox vaccination programs.
Locally, these moneys could be better spent perhaps by
supporting schools, health care services, and job creation
programs. $10 million could support the creation of over 200
local jobs, assuming a cost of $50,000 per job.
So it appears that there are many ways this money could be
better spent, depending on one's perspective, yet under
existing regulations it is unreasonable to expect that State
and local decisionmakers will be able to fend off the
considerable political pressure exerted by private individuals
to gain access to the benefits of tax-exempt financing.
Diverting public funds away from sports facilities will
require removing this authority from State and local political
arena through a prohibition of the use of tax-exempt funds for
sports facilities. There is very little evidence that there
have been $18.5 billion in public benefits generated since 1990
to compensate for the $18.5 billion in public costs that have
been expended.
Mr. Issa [presiding]. Thank you, Professor. The rest of
your statement can be put in the record. You are at twice your
time.
Ms. Long. I apologize. I was just about done.
Mr. Issa. No problem.
[The prepared statement of Ms. Long follows:]
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Mr. Issa. Professor Hale.
And your entire statement, as the chairman said, will be
placed in the record, so you will be as though you said it all,
so it is what you say over and above that, in fact, is a
benefit to you.
Please.
STATEMENT OF DAVID P. HALE
Mr. Hale. Thank you for the opportunity to testify
concerning priority of resource allocation among the Nation's
aging infrastructure. This statement is meant as an overview of
the issues that dominate this priority.
My name is David Hale. As was previously mentioned, I am
director of the Aging Infrastructure Systems Center of
Excellence. The Center is a multi-disciplinary research and
technology transfer center whose mission is to assist the
public and private sector managing and mitigating the effects
of aging on the Nation's infrastructure. The Center takes an
inclusive definition of infrastructure systems that includes
both man-made and natural infrastructure components.
Collectively, these systems provide the foundation for economic
development, safety, security, and quality of life for the
public.
The Center is a collaboration among government agencies,
commercial organizations, and universities whose core set of
expertise ranges from engineering to business, social, and
physical sciences. Our Center's focus is work on an integrated
body of knowledge that crosses fields of science, particularly
with emphasis on physical structure monitoring and improvement
based on risk-based analytic procedures.
This broad perspective leads us to the following. Today the
consequences of breakdowns in our aging infrastructure is
staggering. Policy-makers of physical infrastructure systems
are faced with daunting challenges dealing with prioritization.
As the chairman stated, in 2005 the American Society of Civil
Engineers placed a report card in the public hands that
indicated that all of the Nation's infrastructure had deferred
maintenance, which corresponded to low performance marks across
the board. Our roads, schools, dams, and water systems are all
graded at D or worse. Collectively, $1.6 trillion is needed
over the next 5 years to bring the Nation's infrastructure into
good condition.
Despite staggering consequences that continue to occur on
an ever-increasing scale, financial resources needed for
resilient upgrade of the Nation's infrastructure has been slow
to materialize. The effects of under-funding is evidenced
throughout our society. Recently we have been witness to
catastrophic infrastructure failures, as examples are the I-35
bridge collapse in Minnesota, levee failures in New Orleans,
contamination of our food supplies, and electrical grid
disruptions.
From the chairman's home area in Ohio, at least 35 percent
of the urban roads are considered congested, which causes
excess fuel usage and lost time. The average Canton area
commuter spends $219 a year in excess fuel usage and lost time.
Likewise, Cincinnati commuters have an average cost of
$687. In California, 60 percent of the urban roads are
considered congested, which accounts for the average L.A.
commuter spending over $1,600 a year. Moreover, 71 percent of
the major roads in California are considered poor or mediocre
in terms of condition. This level of upkeep costs the average
Californian motorist $544 per year, which amounts to $12
billion for the State as a whole.
I serve on the State of Alabama Infrastructure Commission.
In that position I am confronted with the tradeoffs between
public safety, economic development, ecology, and quality of
life. I would like to spend some specific time here talking
about one example.
The engineering design life of most bridges built in
Alabama is considered to be 50 years. Currently, Alabama has
1,489 bridges that were built 50 years or more ago. In the next
15 years, another 1,495 bridges will reach 50 years of age.
That is a 100 percent increase that will bring the total number
of bridges in the inventory of bridges within Alabama from 30
percent to 60 percent in the over 50 year category.
Current funding levels for bridge repair and replacement
are $65 million annually. This creates a backlog of almost $2
billion today in current dollars, and this backlog will grow to
$4.5 billion over the next 20 years.
With such high demand for public sector resources, the
prudent question continues to be whether public funding for
sports stadiums squeezes out needed funding for public works
projects that are critical to the Nation's safety and
competitiveness.
The issues I am focused on are accountability,
transparency, and responsibility for decisionmaking processes.
The complex linkages between allocation decisions and
infrastructure performance is difficult to trace. The general
public has little objective evidence to hold its officials
accountable. Many performance indicators are not mandatory, and
many of those indicators that are mandatory are not uniformly
defined, calculated, or disseminated.
Thank you.
[The prepared statement of Mr. Hale follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Kucinich [presiding]. Thank you very much, Professor
Hale.
Ms. Damiani.
STATEMENT OF BETTINA DAMIANI
Ms. Damiani. Thank you. My name is Bettina Damiani. I
director of Good Jobs New York. We are a joint project of the
Fiscal Policy Institute based in New York and Good Jobs First
based in Washington, DC. Good Jobs First is a national resource
center promoting accountability in economic development
projects.
For over 2 years, we have been keeping track of the massive
economic development subsidies going into two of New York's
stadiums, Yankee Stadium and what is currently Shea Stadium,
but it will be called City Field when it is all said and done.
Together, these two projects are going to be costing taxpayers
$1.2 billion. We have been urging more transparency and
accountability in these projects, and the bulk of our efforts
have been around the Yankee Stadium project.
That is not to say that the Mets are not benefiting from
taxpayer dollars. They certainly are. But the reality is, a
process by which the New York Yankees are building their new
stadium is an affront to the democratic process, frankly. They
are building their new stadium across the street from their
current one on what was 22 acres of heavily used park land in
the South Bronx.
Now, the way they got this park land was quite remarkable.
There was not one public hearing. There was not one public
notice. The process took 9 days. I don't know if you all
understand the process in Albany, but they don't move quickly
upstate when it comes to legislature, but they managed to take
away these parks in 9 days from one of the poorest
congressional districts in the country.
This process took not into one ounce consideration for the
health, the educational, or the employment needs of the people
in the immediate community, much less the economic benefits
that it would bring to New York City more broadly.
The stadium is going to cost about $1.3 billion. As I
mentioned, it is directly across the street from where it
currently is located, so it kind of begs the question of the
new economic development that it might be bringing. It is a
smaller stadium. Many of the jobs associated with these
stadiums are part time and low wage. Granted, there are going
to be construction jobs along with this project, and they are
certainly good jobs in New York. There are good union jobs
there. But what is missing is the issue of making sure that
those jobs will benefit people in New York City and in the
Bronx.
There is no guarantee for local residents to be hired.
There is no job training initiative as a part of this. The New
York Yankees claim those are community benefits they say
agreement. It is a mitigation agreement. But nobody is watching
that store. The only notice that has come out from this project
about local hiring has come directly from the Yankees, so we
are quite curious where our local elected officials are and who
is holding the Yankees accountable. We need to make sure that
local residents are getting access to job training and actual
jobs.
How did this happen? The Yankees seem to have a variety of
maneuvers, and one of them was really an all-hands-on-deck
philosophy. They managed to--and quite brilliantly so,
depending on how you look at it--hire former public officials
and former officials in a variety of agencies in which they
needed approvals from, ranging from for subsidies, for land
use, and for other infrastructure needs.
I should mention that the president of the New York Yankees
is Randy Levine. He was formerly deputy mayor for economic
development under Rudy Guiliani, so there is quite an insight.
That is just sort of a large example of how this process really
started to move along.
The fix was really in once they took the parks, so in June
2005 there was a memorandum of understanding between the city
and the Yankees that everything that happened would, indeed,
happen, including subsidies and land use and making sure that
the process went along as efficiently as possible. Our elected
officials have said that this is a privately funded project.
There is really nothing further from the truth. It is going to
cost taxpayers about $795 million.
Just yesterday there was an approval for parking garages
associated with this project. There are going to be about 9,000
parking spaces in a community that has one of the lowest car
ownership rates in the city and some of the highest asthma
rates in the city, so it is counter as to where we should be
putting our money. It should be going into our subways. Those
are our highways in New York. That is how we get around. We get
to our baseball games, we get to our work, we get to our
leisure activities through our subways.
There is a great issue of whether there is enough money
going into our subways. The Comptroller recently put out a
report saying it is going to need an extra $673 million just to
bring up some basic issues in our subways, making sure we have
ventilation fans in case there are fires or explosions, bring
the lighting up to code. And outdated signal systems make the
system unreliable, and an unreliable New York City subway
system doesn't do much for our economy.
Our water system, we have tunnels dating back from 1917 and
1936 that need to be greatly improved. We love our water in New
York. We push bottled water aside when we can. We think tap
water is really the way to go and we want to keep it that way.
It is going to cost money.
Our bridges, we have about 800 bridges that are
questionably structured in New York. The Brooklyn Bridge--
everybody knows the Brooklyn Bridge--is one of the biggest
concerns in our city, and there are about 10 other bridges that
actually lead to the Brooklyn Bridge that are under
consideration as structurally deficient, as well.
So there is a variety of infrastructure issues in the city
with the population and growing demands of New York. We expect
another one million people in the next 20 years, and we have to
address those needs over the needs of the New York Yankees,
remembering that they are a private team and they deserve not
more than what our basic infrastructure deserves.
Thank you.
[The prepared statement of Ms. Damiani follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Kucinich. Thank you very much for your testimony.
Dr. Maguire.
STATEMENT OF STEVEN MAGUIRE
Mr. Maguire. Good afternoon. My name is Steven Maguire, and
I am a Specialist in Public Finance at the Congressional
Research Service. I would like to thank Chairman Kucinich,
Ranking Minority Member Issa, and the committee for allowing me
the opportunity to testify before you today.
The Joint Committee on Taxation has recently estimated that
the Federal exclusion of interest on public purpose State and
local government bonds will generate a tax expenditure of $156
billion over the next five fiscal years, 2007 to 2011. This tax
expenditure includes the expenditures arising from tax-exempt
bonds issued for public infrastructure, in many cases sports
stadiums and arenas.
Today I will present data from the Bond Buyer Yearbook from
various years. After reviewing these data, two things arise.
First, annual issuance of private activity bonds has declined
as a share of total issuance since 1987. Second, viewed from a
national perspective, bonds used for stadiums do not seem to
substitute for transportation infrastructure bonds.
As it is late in the day and most of what I was going to
say has been said, I will be brief and go right to the data.
The Bond Buyer reports annual issuance by bond
characteristics and by function. The bond characteristic at
issue here is the treatment of bond interest for purposes of
calculating the alternative minimum tax. A&T bonds are private
activity bonds whose interest must be added back when
calculating A&T liability.
Figure two in my written testimony talks total bond
issuance and A&T bonds as a subset of that total. The secondary
axis on the right-hand side in figure two reports the A&T share
of the total and plots an estimated trend line. The trend line
clearly shows decline in the annual issuance of private
activity bonds' share of total volume from 1987 to 2006. From
this, one could conclude that the volume cap may constrain the
use of qualified private activity bonds.
Data on transportation and sports facility bonds: the Bond
Buyer also reports the type of activity financed by bonds.
Transportation bonds as defined by the Bond Buyer Yearbook
includes issues sold for airports, seaports and marine
terminals, roads, highways, toll roads and bridges, tunnels,
parking facilities, mass transit systems, and miscellaneous
transportation projects. Sports facility bonds are included in
the broader category, public facilities. Notably, the largest
public facility issue in 2006 reported by the Bond Buyer
Yearbook was the New York Convention Center Development Corp.'s
$943 million sale on August 16, 2006, for Yankee Stadium.
Generally, bonds for transportation infrastructure appear
to consume roughly 10 percent of total annual bond volume, and
bonds for stadiums approximately 0.4 percent. Figure three in
my written testimony charts the annual volume of bonds for
transportation projects and stadium as a percentage of total
annual bond volume for the 1987 to 2006 time period. Bonds for
transportation infrastructure seemed to be trending upward, as
with stadiums. The trend for stadiums, however, is not as
robust. In fact, the bonds for Yankee Stadium accounted for
one-fourth of the total for stadiums from 2006, likely
generated a one-time spike in the stadium percentage, in turn
generating the upward slope.
Conclusions: the data as presented here do not support the
notion that bonds used for stadia could have been used for
transportation projects. If so, one would have expected the
share of transportation bonds to increase more slowly than that
for stadiums. That is not the case. Nevertheless, the national
data may mask State-specific or local tradeoffs between bond
funding for stadiums and transportation infrastructure.
Thank you, and I look forward to any questions you may
have.
[The prepared statement of Mr. Maguire follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Kucinich. Thanks again to all members of the panel.
Professor Long, I would like to begin questioning with you.
You are a trained urban planner. Does it make sense for urban
plans to feature a professional sports stadium?
Ms. Long. Brief elucidation. Are you asking whether or not
it makes sense for cities to use stadiums and arenas as an
urban development catalyst?
Mr. Kucinich. Yes, and also are there other publicly
financed facilities that make for better cities?
Ms. Long. Good question, broad question. In terms of
studies that have looked at whether or not stadiums and arenas
are effective catalysts in either an urban development sense or
an economic development sense--and by economic development I
mean, and this is the term used in most of the studies and in
previous testimony, economic development is jobs and taxes,
urban development tends to focus on the physical, i.e., new
development, reduction in vacancy rate. Then there is a set of
intangible benefits.
Mr. Kucinich. So does it make economic sense then?
Ms. Long. The economic sense, in terms of the data on the
economy, you have heard previous testimony on this subject
matter, and the overwhelming consensus is that there are
negligible new benefits from an economic perspective. From an
urban development perspective, there are some current
investigations into this question, and the reason it is a very
difficult question to answer at this particular point in time
is that the majority of the new stadiums of this 82 built in
the last 15 years, the majority of them came online between
1996 and 2000. If they are intended to anchor new development
in an under-developed area of a city, it typically takes a time
horizon of 10 to 15 years to see anything close to 50 percent
build-out, let alone full build-out.
So the short answer is not enough time has passed to know
the answer to that question. The hypothesis from urban planners
is that we will start to see some physical development in these
areas that might not have occurred in that city had it not been
for the facility. So the long answer is it is possible.
Mr. Kucinich. You have drawn a distinction in your
testimony between the national view on the question of whether
public financing for professional sports stadiums diverts funds
from infrastructure and the local view. Which is the more
appropriate view on the question of existence of a diversion
from meeting critical public infrastructure needs, a national
or local view? And why?
Ms. Long. I think that the local perspective is more
important. First of all, because we are talking about major
league sports facilities, there is only a relative handful of
large cities that host these stadiums and arenas, slightly over
50, whereas at the national level, infrastructure is an issue
in the over 40,000 jurisdictions in the United States. So the
local level I think is more important, because if we substitute
these funds that is where it is happening, so the $1 billion to
$2 billion a year subdivided by those 50 cities, we are talking
about, on average, $10 million per facility per city. That is a
lot of money.
Mr. Kucinich. Thank you.
Professor Hale, as you may know, former New York State
Comptroller Mr. Regan wrote an article where he identified an
absence of a process based on sound science and analysis to
compare and prioritize infrastructure needs. He also noted
there was little public information about inherent choices
before they are made. What is your explanation, from a process
perspective, on why the public infrastructure is not adequately
maintained? And then where should elected officials place the
desire to build a professional sports stadium in a list of
infrastructure priorities?
Mr. Hale. As you read the initial statement at the opening
of this hearing, you mentioned that there was very little data
that had been going out. This is part of the rationale. We
don't have a closed loop system here. Much of the data that is
being collected is being collected ad hoc. The data that is
being processed is being processed in multiple different ways.
One of the issues that brings this all to bear is that the
stakeholders who should be judging this, basically the
constituents, are not getting reports on what performance
should be in most of the infrastructure.
For example, in Alabama one of the areas that we do have
reporting is in our freshwater drinking, and in our drinking
system each year we get a report card basically on the quality
of water. In that system, the variation of quality is much less
than in the other infrastructures that we see within our own
State.
Mr. Kucinich. Thank you very much.
I want to go to Mr. Issa right now.
Mr. Issa. Thank you, Mr. Chairman.
This panel is even more intriguing than the previous one,
and I appreciate all of your testimonies.
Ms. Damiani, you have a wonderful name. You have my
sympathies, because I have hated the damn Yankees my whole
live, and as a Clevelander who kicked their ass with a lot less
money this year, as far as I am concerned the Bronx Bombers can
just flat go out of business. It won't bother me a bit. And
Steinbrenner and all his millions can go do something else.
So, just so we understand, I am on your side on this, and I
do believe that your complaints, which were also heard in the
first previous hearing we held, are a classic example of a
failure of local city government and State government to
maintain any or all interest groups, particularly when it
relates to a public park and a redevelopment. It is not unique.
In California we certainly have had the taking of one group's
land for the purpose of what a city council or State assembly
thought was to the benefit of somebody else's. On that you have
total agreement.
So I am not going to ask any questions except to say, one,
I wouldn't buy the Yankees a new stadium; two, that, in fact,
your point is well taken on the absence of the kind of local
control that should be in every project.
Dr. Maguire, I have just a couple of questions for you. I
am using a little bit of Professor Long's testimony. If I take
her figures and her figures, there is not a lot of controversy,
so let's just assume for a moment that 75 cents on every $1 is
somehow not by the private company--in other words,
professional sports, the National Baseball League or the NFL or
whatever--that 25 percent comes from them and the other 75
percent comes from public contribution, which is then repaid
all or in part by taxes and fees. Fair assessment that the two
of you agree on that as good a figure as any?
Mr. Maguire. Sure.
Mr. Issa. OK. And we will assume for a moment we are going
to take the 1993 to 2005 and call it $18 billion. You two can
kind of agree on that, because I think it is important. If it
is $18 billion, 33 percent Federal bracket, we are talking $6
billion in Federal subsidy over that period of time. Right?
Mr. Maguire. Sure.
Mr. Issa. OK. The $6 billion, when we play with $2.5
trillion a year here, I do have to ask are we talking about a
relatively small amount of money in the sense that it is a few
hundred million per year of Federal taxes lost, if I did my
math right: $6 billion over 12 years is $500 million a year of
lost Federal revenue. Am I doing my math right?
Mr. Maguire. I assume you are, yes.
Mr. Issa. OK. Now, if we look at Federal revenues on a
global basis, because I think in the earlier panel there was a
good faith statement that I think is to be considered as a
fact, and that is that if you move these things all around from
city to city, at the end of the day you have the same amount of
teams and they are in some city, and I think that is something
we can all agree on. This is a very bipartisan subcommittee, so
we look for what we can agree on as much as we can. We all kind
of agree on that, that whatever the benefit is to the Federal
Government for its $500 million a year, it is roughly the same
no matter what city it is in, with the possible exception of
New York, but we are not going to go there.
If that is the case, what would it take for $18 billion to
get $500 million of benefit to the Federal Government per year
if a city instead just didn't have those hotel taxes that
typically pay for stadiums? What would be the benefit of that
slightly lower tax and not having the stadium to the city?
Because, if I understand it correctly, since it is paid for by
taxes almost always that are levied commensurate in some way
with the activity--and in San Diego we did it with hotel taxes,
hotel and drink taxes and so on--those taxes would either not
have been levied or, if they were levied, they still would have
been reasonably justifiable only to promote that same
activity--in other words, clean up the downtown area, dig out
some public other amusement park.
Realistically, can either one of you--and Dr. Maguire
first, but, Professor, you, too--can you put a dollar figure on
what not having this $1.5 billion a year spread over the whole
country, this $500 million spread over the whole country if we
just didn't tax that? The Federal Government wouldn't get the
benefit because it just wouldn't have been taxed. What would we
really get for it if we just didn't spend the money on it and
closed down every team for a moment and just don't have them?
How would you say that impact is to the $500 million to the
Federal Government per year?
Mr. Maguire. Well, I have been instructed not to testify
beyond what was in the written testimony and what I spoke about
today, but I will kind of divert things a bit.
Mr. Issa. Be brave. Be bold.
Mr. Maguire. Be brave and bold. It is about the stadiums,
and it brings back something that happened in a hearing a
couple of months ago, what Dennis Zimmerman said, that the
number of professional sports teams is restricted, and so one
could say on the demand side a lot of cities want a team but
they can't get them. Some might even say there should be
several more teams in New York. If you had a more free market
for sports teams, you would have a lot more teams out there
without the ability to blackmail cities into paying more than
what they should have for the team.
So if you start with the assumption that there is a
perfectly competitive market for sports teams, then I think you
have started on the wrong path. You have to assume that there
is some sort of monopoly restriction on the number of teams
that are out there. And then from there you have to wonder what
role has the Federal Government played in that somewhat
dysfunctional market.
I think I should stop there and defer.
Mr. Issa. I think that is great. I apologize, I have been
running over to Judiciary all day. We have and we continue to
review the question of antitrust and whether or not,
particularly as to limitation of number of teams, whether that
is something that we should take out of the antitrust exemption
that, in fact, allows for a single entity to restrict the
number on a national basis.
I will give Professor Long the final word, but I was only
trying to get the ability to say, look, $500 million to the
Federal Government in abatement--because that is the only cost,
because the rest of it are taxes that wouldn't have occurred
normally because you are not going to normally tax the hotel if
they don't feel that they are getting back a benefit in
revenues greater. How big an offset is it? I think we have been
talking in big terms here, but when you break them down it is
actually a relatively small amount into a $2.5 trillion a year
Federal Government.
Ms. Long. If I understand your question correctly--and I am
not sure that I do--the $10 million on average that a city and
a county government are spending subsidizing a sports facility,
how might that $10 million be better used? Is that your
question? Is it the notion of opportunity cost?
Mr. Issa. Yes. It is strictly a matter of if you didn't tax
because it didn't happen, then those two-thirds of the revenues
would disappear because the revenues are generally commensurate
with the new construction, so the only difference is the $500
million a year of Federal taxes. The question is: how big an
impact would that have to those of us in Washington, because
our jurisdiction on this committee is somewhat limited to
whether or not that is a fair assessment to give the tax
treatment. We have to wrap up. I apologize.
Ms. Long. This is actually an interesting question and an
interesting point. It brings up the point of Denver, where
there was a specific increase in the sales tax in the five-
county area that was dedicated to repayment of the debt
issuance for the two facilities in that case. They expected the
bonds to have a duration of 30 years, but, in fact, the bonds
were retired after 6 years because the sales tax revenue had
created so much additional revenue more than they had
anticipated.
Then I believe they did rescind the tax increase, so that
is an example of a good outcome where the tax is directly and
100 percent tied to the nature of the cost.
I am not convinced that in every case there is a complete
and perfect nexus to the cost, and I think that is where the
issue lies. Hotel taxes are not paid exclusively by people who
come to town to view a sports game. In fact, in many case the
hospitality industry dislikes additional taxes on tourism
revenues because it has an impact on their other visitors. So I
think it is a more nuanced issue.
Mr. Issa. Thank you. And thank you for the second hearing,
Mr. Chairman.
Mr. Kucinich. I want to thank the gentleman.
In order to keep the time evened out here, I am going to
ask my 5 minutes and then we are going to be done, if that
meets with your approval.
Mr. Issa. That is fine.
Mr. Kucinich. Ms. Damiani, you have testified and
previously written about a process by which the Yankees got a
new publicly financed stadium. What is the experience which you
have documented about how the Yankees got public money for the
new stadium? What does it say, if anything, about the process,
itself?
Ms. Damiani. I wish I could say there was a real process.
They needed to go through our city's land use procedure, which
on paper looks somewhat extensive. There needs to be community
hearings. The Bronx Borough president needs to be involved and
the entire City Council has to approve the project. The local
community board voted overwhelmingly against the project, and
afterwards the borough president removed every single one of
the members that voted against it.
The entire city council minus the representative that is
right around Yankee Stadium voted for the project under the
guise that there is this community benefits--I am saying
agreement, but please note that is really not what it was. That
is a lingo that has been picked up. Unfortunately, it doesn't
seem to be clear in the Bronx what it is.
So they were saying that the reason why many of these
officials were voting for it and approving of this process was
because there were going to be guaranteed benefits on the other
end.
Mr. Kucinich. Let me ask you this question. You said that
the former commissioner of the Office of Labor Relations and
Deputy Mayor for Economic Development ended up as an official
of the Yankees?
Ms. Damiani. Yes. Yes, sir. Randy Levine is----
Mr. Kucinich. Was there any evidence that he was involved
in any of the decisionmaking with respect to the use of land
that then became a benefit to the Yankees?
Ms. Damiani. There were some agreements that were approved
at the very end of the Rudy Guiliani administration. Randy
Levine wasn't there at that exact moment, but suffice to say
the experience that he picked up on the taxpayer tab I am sure
has greatly benefited the Yankees' bottom line.
Mr. Kucinich. The Yankees are benefiting greatly by the
public financing of the new stadium and parking garage. Have
they been careful with the public money they have used?
Ms. Damiani. The public money?
Mr. Kucinich. You know, it is undisputed that the Yankees
are benefiting greatly----
Ms. Damiani. Yes.
Mr. Kucinich [continuing]. By the public financing of the
new stadium and the parking garage. Have they been at least
careful with the public money they have used?
Ms. Damiani. I am not quite----
Mr. Kucinich. They have a public benefit, I mean, how
they----
Ms. Damiani. I am going to say no. There hasn't been a
clear definition as to how the local residents are going to be
getting jobs from this. There have been many conversations
about it, but as far as people----
Mr. Kucinich. What about the planning money?
Ms. Damiani. Rudy Guiliani allowed the Yankees to deduct $5
million a year for 5 years to plan the new stadium, and Mayor
Bloomberg actually extended that for another 5 years. Those
planning expenses seem to have done two things: hired former
public officials and experts to make sure that they could get
the land use and the subsidies. So in a sense New York City
taxpayers are allowing themselves to sort of be taken advantage
of because the Yankees used that money to then benefit the
expediting of the process.
Most recently, we finally got documents from 2006 that the
Yankees gave to the city--now, we are not quite sure whether
they have actually officially deducted them or not, but the
receipts were nothing related to planning costs. There were
deductions for crystal baseballs and salmon dinners on post-
season nights and lots of tee-shirts and jerseys and the like.
So I just want to reinforce that the local issue that,
Congressman, you brought up is very important, and it is
greatly lacking in New York.
Mr. Kucinich. Final question, Dr. Maguire. As a Ph.D.
economist who wrote his dissertation on the economics of
professional sports stadiums, does it make sense for public
officials to spend taxpayer funds on professional sports
stadiums? And do stadiums deliver jobs and revenues as their
proponents claim?
Mr. Maguire. I will agree with all the economists that have
appeared before you in the past, not found any tangible
benefit, just a shifting of jobs and economic activity, not a
new or net gain.
Mr. Kucinich. Thank you very much, Dr. Maguire.
I want to thank Mr. Issa for his participation in this
hearing. It has been an excellent discussion.
I am Dennis Kucinich, chairman of the Domestic Policy
Subcommittee of the Oversight and Government Reform Committee.
This has been a hearing on Professional Sports Stadiums: Do
they Divert Public Funds from Critical Public Infrastructure. I
want to thank all of the witnesses who are here today and thank
all of those who have been in attendance and who are watching
the proceedings, and the staff of both the majority and
minority for their assistance in preparing for this hearing.
This committee stands adjourned.
[Whereupon, at 5:25 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Diane E. Watson follows:]
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